Failure to Pay Commissions Is Not a Valid Defense Under the Theory of Unclean Hands (Central Texas Orthopedic Products v. Espinoza)

When trying to break a non-compete, it is very common for an employee to raise the affirmative defense of unclean hands and air his ex-employer's dirty linens.

Rarely is this defense successful. As I noted last month, the defense often revolves around an employer's practice in hiring employees away from competitors. This is not really a defense at all, for there often is no connection between recruitment practices and protection of a customer base relating to a departing employee.

A Texas appellate court recently offered a second example: failure to pay commissions owed. In some cases, this may amount to a material breach of contract - meaning the employer cannot enforce a non-compete contained in the same agreement. But it is not a defense based on the employer's unclean hands. The nature of that defense means the wrongdoing must be connected to the same matter raised in the litigation.

The unclean hands defense is sometimes successful. Suppose, for instance, an employer ordered an employee to overcharge customers or to allocate territories with a marginal competitor. A subsequent attempt to enforce a non-compete could run into a problem under the unclean hands defense. Enforcement of a covenant would undermine any protectable interest in the non-compete itself. Under the above example, a pricing structure or market allocation scheme may not be confidential (and hence protectable); it could be illegal. The defense would relate to an element of proof the employer would have to establish regarding enforceability, and so the unclean hands doctrine may properly apply.

As a general rule, the unclean hands defense is exceedingly narrow and only rarely will prevail. Courts are wary of employees who assert a vague list of employment grievances wholly unconnected to the restriction.

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Court: Court of Appeals of Texas, Fourth District
Opinion Date: 12/9/09
Cite: Central Texas Orthopedic Products, Inc. v. Espinoza, 2009 Tex. App. LEXIS 9355 (Tex. Ct. App. Dec. 9, 2009)
Favors: Employer
Law: Texas

Connecticut Court Rejects Unclean Hands Defense In Non-Compete Case (Drummond American v. Share Corp.)

There is a big difference between a justification and an excuse. In a non-compete case, many times an employee - being in a position of having to admit breach - offers only a litany of excuses, rather than a legal justification.

Such was the case in a summary judgment decision involving a claim against a sales agent for a chemical products distribution company. The ex-employee, Mahoney, sold commercial grade chemicals to large customers - and only a couple of dozen, at that - on behalf of Drummond American. She signed a two-year customer non-compete clause, barring her from soliciting sales of competing products relating to accounts she serviced at Drummond.

Drummond had to admit a breach - despite her new employer's admonition against violating the non-compete contract, she sold chemical products to 12 of her 26 former Drummond accounts. In defense, Mahoney offered an array of excuses for her breach, it being generally acknowledged that the covenant was reasonable under Connecticut law.

The court rejected, rather easily, each defense. Of particular note was Mahoney's contention that the doctrine of unclean hands applied to her argument that Drummond hired employees from competitors and encouraged them to violate non-compete contracts. This "defense", if one can call it that, is one I see frequently. However, it is irrelevant, at best.

Even assuming the defense is true, no two employees are alike. One employee may have little value to an ex-employer (perhaps she was an underperformer), so the cost of litigating almost certainly would outweigh any benefit from obtaining an injunction. The company from whom another employee is hired may be exiting the market entirely and not likely to pursue a claim. There really are an unlimited number of reasons.

But the doctrine of unclean hands requires a showing that the plaintiff acted inequitably as to the particular controversy at issue. Airing your ex-employer's dirty linens in an unrelated matter not only is a poor defense, it generally shows the court the employee can offer nothing more than flimsy excuses for a contract breach.

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Court: United States District Court for the District of Connecticut
Opinion Date: 11/12/09
Cite: Drummond American LLC v. Share Corporation, 2009 U.S. Dist. LEXIS 105965 (D. Conn. Nov. 12, 2009)
Favors: Employer
Law: Connecticut