Ex-employers must weigh covenant suits
Published 03/30/99

When an employee, who has signed a Covenant Not to Compete, leaves his employer, and thereafter engages in competition with that former employer, the former employer may be anxious to immediately initiate suit for breach of the Covenant Not to Compete. However, a recent Massachusetts case reestablishes the importance of a careful review of the actual terms of the Covenant Not to Compete as well as establishing a violation of the Covenant Not to Compete prior to instituting suit.

In a case recently decided in a Dedham District Court in Massachusetts, the trial judge awarded a former employee of a large company treble damages, costs and attorney's fees against his former employer who the Court found had filed a meritless non-compete suit against the former employee. The Court specifically found that the lawsuit initiated by Ecolab against its former salesman, Charles Coyle, was an abuse of process, in that Ecolab had made no reasonable investigation of a violation of the non-compete prior to filing suit. The Court found that Ecolab had initiated the cause of action against Mr. Coyle to impair his business and to cause him economic harm. The Court further found that Ecolab's actions were unfair and deceptive and willful violations of Massachusetts Consumer Protection Act. While generally such a statute does not apply to employee/employer relationships, the Court specifically found that it was the suit itself, and not the employer/employee relationship that created the cause of the action set forth by Mr. Coyle in his counterclaim against Ecolab. The Court found that Ecolab's lawsuit was a "none too subtle attempt to intimidate Coyle and through him other employees leaving Ecolab." Ecolab has appealed the decision, and the appeal is pending.

While the appellate court will make the ultimate decision as to whether the trial court's judgment is to be affirmed, reversed, and/or remanded for further proceedings, this is an important reminder that, at least in the judicial system, might does not make right.

The facts of this particular case were that Mr. Coyle had set up his own business in direct competition with Ecolab and did take several customers of Ecolab, yet the specific contract which he had with Ecolab only prohibited him from soliciting business he had worked upon in the year prior to his departure. The clients Mr. Coyle had taken were not clients he had worked with in that year. While this case is currently on appeal by Ecolab, it is an important reminder to employers to do their homework before making accusations and not expect that merely because they have a "larger war chest" than their former employees, that they will achieve their objectives through the judicial process. The case also illustrates the importance of carefully examining the facts and the law prior to instituting any litigation. Finally, it should be noted that the Courts, while narrowly construing Covenants Not to Compete in the employment context, are willing to enforce them to the extent that they protect a legitimate business interest of the employer and have no tolerance for employees who use or disseminate confidential and proprietary information to the damage of their employers in breach of nondisclosure agreements, or in violation of trade secret or intellectual property laws.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, PA whose legal practice includes counseling businesses and business persons on a variety of legal issues and advocating on their behalf. Attorney Marr is also an adjunct professor at Daniel Webster College where he teaches business law. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

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