Summary
The Vermont Supreme Court affirmed an injunction enforcing a six-month noncompetition agreement against a former regional vice-president of sales. The court held that the employer had a legitimate protectable interest in its goodwill and business information, that the restriction was not unnecessarily burdensome, and that the employee had violated the agreement by working for a direct competitor. The court also rejected the employee’s equitable estoppel argument.
Topics
Practice areas
Questions Presented
- Whether the noncompetition agreement protected a legitimate interest of Systems & Software.
- Whether the agreement was broader than necessary, imposed undue hardship on Barnes, or was contrary to public policy.
- Whether Barnes violated the noncompetition agreement.
- Whether Systems & Software was equitably estopped from enforcing the agreement.
Holdings
- A noncompetition agreement may protect legitimate employer interests broader than trade secrets or confidential customer information, including business goodwill and knowledge of customers, products, and business practices. Systems & Software established a legitimate protectable interest because Barnes acquired inside knowledge that could give him a competitive advantage.
- The court may enforce a complete ban on post-employment competition when the restriction is reasonably limited in time and geography and is justified by the employer's protectable goodwill and business information. The six-month restriction was not shown to be unnecessarily restrictive or unduly hard on Barnes.
- The superior court was not required to rewrite the parties' noncompetition agreement into a narrower customer-solicitation restriction.
- The evidence supported the finding that Barnes violated the covenant by operating a consulting firm whose only customer was a direct competitor of Systems & Software and by representing that competitor in competition for contracts.
- Systems & Software was not equitably estopped from enforcing the noncompetition agreement because the superior court found that Barnes's alleged misrepresentations were not made and found Barnes's contrary testimony not credible.
Key quotations
“we will proceed with caution” (886 A.2d at 764)
“This argument fails because it is based on a faulty premise — that noncompetition agreements may be enforced to protect only trade secrets or confidential customer information.” (886 A.2d at 765)
“Because it is essentially impossible to monitor an employee's `use' of goodwill, this interest will support a complete ban on competition as long as it is reasonably limited temporally and geographically.” (886 A.2d at 766)
Factual background
Systems & Software hired Barnes as an at-will regional vice-president of sales, and Barnes signed an agreement prohibiting him from working for a competing business during employment and for six months afterward. Barnes voluntarily left Systems & Software and formed Spirit Technologies Consulting Group, whose only customer was Utility Solutions, Inc., a direct competitor serving the same utility-software market. During his employment, Barnes had obtained knowledge of Systems & Software's products, customers, pricing, marketing strategy, and business practices, and thereafter represented Utility Solutions at a trade fair and in competition for contracts against Systems & Software.
Procedural history
Systems & Software filed a complaint and request for injunctive relief seeking enforcement of the parties' noncompetition agreement. After a June 2004 hearing, the superior court granted an injunction on July 22, 2004, and entered a final judgment order on August 6, 2004. Barnes appealed, and the Vermont Supreme Court affirmed.