Thursday, June 17, 2010
Geographic Restrictions Require Court to Consider Where Competition Takes Place (Concrete Surface Innovations v. McCarty)
It is less and less common these days for parties to fight over industry non-compete agreements, particularly when client non-solicitation covenants will do the trick. As readers of this blog know, the difference in the type of restriction is important when analyzing the reasonableness standard.
For client non-solicitation agreements, geographic restrictions are not necessary provided there is some discernible limit on the clients that are off-limits to the employee. (By way of example, a restraint prohibiting competition with past clients or prospective clients with whom the employee never developed a relationship are at risk of being struck down). But in the vast majority of industry non-compete arrangements (which limit work altogether), geographic restrictions are necessary and require careful analysis.
Measuring the scope of the geographic restraint requires some actual thought, however. Take for example a covenant that provides that an employee cannot compete within 10 miles of his former employer's office. Does this mean the employee cannot open an office or live within that restriction?
Generally, no. It is where the competition occurs that matters. Of course, if the employee is a doctor or provides services in that office, then the 10-mile restraint would apply and prohibit competition. But if the employee provides services to clients outside the 10-mile radius, then the location of his home or office is irrelevant.
A federal district court in Florida recently said as much, rejecting the employer's argument that the location of the employee's new office was the critical inquiry. Instead, the court looked at where the employee was actually providing services to clients. Since those services were not in the office and instead on-site at a client, the office location was irrelevant.
This analysis from Concrete Surface Innovations v. McCarty is useful for analyzing the scope of covenants when an employee solicits or services clients outside a prohibited geographic scope. It's the location of the client that matters, because that is where the competition is occurring.
Court: United States District Court for the Middle District of Florida
Opinion Date: 5/13/10
Cite: Concrete Surface Innovations, Inc. v. McCarty, 2010 U.S. Dist. LEXIS 56045 (M.D. Fla. May 13, 2010)