Poor drafting of noncompete agreement, weak pursuit of trade secret claim leave employer vulnerable to competition
In United Rentals (N. Am.), Inc. v. Keizer (01/07/04 – No. 02-1580), the Sixth Circuit held that a former employee did not violate the non-compete provisions of his employment agreement with his former employer, applying a very literal “common sense” interpretation of the agreement.
The agreement provided:
Competition and Solicitation. For a period [of] five (5) years, neither the Employee nor any of his Affiliates shall, anywhere in the Target Area, (as herein defined), directly or indirectly, acting individually or as the owner, shareholder, partner, or employee of any entity, (i) engage in the operation of any equipment sale, rental or leasing business; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of any business engaged in such activities . . . .
Following termination of employment, the employee went to work for a business physically located outside the Target Area which did one-third of its business with customers located inside the Target Area. He began soliciting and selling equipment to the former employer’s customers and engaging in other competitive activities within the Target Area.
The court held this activity was not a violation because the new employer was not located within the Target Area, focusing on the word “operation” and stating: “When ordinary speakers refer to where a business is operated, they refer to the location of the business” (emphasis in original).
While one can question the court’s interpretation, it is not unforeseeable that any ambiguity or lack of clarity in a noncompete agreement would be construed against the drafter, given that such agreements are not favored due to their anticompetitive effect. Reason to be extremely careful with the wording of such provisions.
It must be clear that if there is a geographic limitation, it applies to the location of the employee’s activities as well as the competing employer’s business. Additionally, it is usually a good idea to have a nonsolicitation-of-customers clause as a backup if the court finds some reason not to enforce the broader noncompete. Here, the nonsolicitation clause was ignored by the courts, perhaps because it was not worded clearly in terms of nonsolicitation of customers.
There also was a trade secret claim based on alleged theft of a customer list. There was evidence that the competing employer received the list from another person, glanced at it “for three minutes, determined that it would be wrong to use the list, set it down and never saw the list again.” The court concluded: “As far as anyone knows, the list that appeared . . . existed for a day and then disappeared.”
Yeah, right. My question is how much effort did the attorneys for the plaintiff put into attempting to prove otherwise? Isn’t it much more likely that the list was quickly photocopied or scanned into the competitor’s computer system before being “rejected” as being “wrong”?
Careful forensic investigation of the competitor’s information systems and efforts to build a strong circumstantial case that such information was used by the competitor — based on facts such as the competitor’s solicitation of the former employer’s customers after it “rejected” the customer list (indicating it must have been using the information) — may have yielded evidence that could have yielded a different result in this case.
