Thursday, March 24, 2011

Arbitrary Geographic Restriction May Not Be Unreasonable (Timber Lake Foods, Inc. v. Estess)

How can a nationwide business draft a non-compete so that its geographic scope is reasonable?

For starters, employers should consider less restrictive (and more enforceable) alternatives such as a client non-solicitation clause. Such a clause is self-contained, in that a court need not determine mileage scope and where exactly the agreement extends. It would be limited to identifiable clauses - assuming it is well-drafted.

An employer also could add to this a more limited non-compete, identifying prime competitors and trying to contain the non-compete in some respect. The downside to this is that it may not be all that effective in businesses with low barriers to entry or if the employer runs into a wide range of competitors.

Employers can get away with mistakes, though, and rely on more traditional time-and-territory covenants. Take the case of Stephanie Estess and her employment with abrokerof meat products, Timber Lake Foods, Inc. based in Tupelo, Mississippi.* Estess signed a 2-year, post-employment non-compete covenant that prevented her from "performing any services regarding the brokerage of meat and/or poultry prodcuts...for any person or business entity...within a 250-mile radius of Tupelo, Mississippi."**

Estess' job extended throughout the country, in that she apparently dealt with both suppliers and customers in various states. She could work from home or any location as long as she had access to a computer. Her argument was that the geographic scope was arbitrary. However, as the Court of Appeals of Mississippi held: a finding of arbitrariness "does not establish the unreasoanbleness of the geographic limit." True enough. Estess could have moved to some other locale and not violated anything.

It would have been much easier had the employer drafted the agreement only to prevent certain activities, as opposed to employment itself. That type of restraint would not have needed the geographic term. It also would have applied if Estess moved away to compete. Consider the employer lucky on this one.

* If you don't know the significance of the Elvis picture, you know nothing about music history.

** As an aside, I am not sure the covenant is as clear as the court in this case thought. If Estess could not broker food products for any person within a 250-mile radius of Tupelo, does that mean that the competitor or the customer has to be located within the 250 miles? To me, the services are provided to the customer, so the location of the competitor seems irrelevant. I think the court and the litigants may have misread what the clause actually says.


Court: Court of Appeals of Mississippi
Opinion Date: 3/8/11
Cite: Timber Lake Foods, Inc. v. Estess, 2011 Miss. App. LEXIS 136 (Miss. Ct. App. Mar. 8, 2011)
Favors: Employer
Law: Mississippi

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