Non-Compete Cannot Be Used to Prevent “Poaching”
Recently, a Connecticut Superior Court refused to enforce a non-compete agreement because the court concluded that the non-compete agreement was designed to prevent at-will employees from leaving for higher paying jobs with more opportunities with the employer’s competitor. Seeking to prevent a competitor from acquiring talented employees, whom it is willing pay more, is not an interest protected by law. To the contrary, it is a restraint of trade and against public policy.
In The Walker Group, Inc. v. Hannaford, the employer, an information technology services company that provided all of the computer and computer network maintenance, consulting and technical support for its customers, sought to prevent an employee who had handled complex and challenging issues for its customers, often at their places of business, from joining a competitor.
The competitor had been recruiting the employer’s employees by offering higher salaries and the promise of a more attractive work environment. The competitor reached out to the employee with a lucrative offer. The employer responded with a matching offer and the employee agreed to stay.
However, the competitor continued its recruiting of the employer’s employees and successfully lured two away. Around the same time the employer lost a major client to the competitor. Convinced that the two events were linked, the employer adopted a non-compete agreement that specifically excluded going to work for the competitor. The employee signed the non-compete agreement and received consideration.
A few months later, the competitor again approached the employee and this time he agreed to work for them, knowing that doing so would violate the non-compete agreement. His job with the competitor was substantially similar to the job he held with the employer, but at a bit more sophisticated and advanced level.
The employee did make an effort to comply with some of the provisions of the non-compete. He did not work for any of the employer’s customers, nor did he solicit any of them. In fact, he generally declined to work for customers located in Connecticut, where virtually all of the employer’s customers were located. As a result, the employer did not lose a single customer because of the employee’s work at the competitor.
The court began its analysis by noting that a non-compete in Connecticut is only enforceable if it is “reasonable,” which Connecticut determines using a five factor test:
(1) the geographic scope; (2) the temporal scope; (3) whether it protects a legitimate interest of the employer; (4) whether it unduly interferes in the employee’s effort to be employed; and (5) the impact of the non-compete on the public.
The court focused on the employer’s interest in enforcing the non-compete. It noted that there was no issue of the employee using trade secrets or confidential information. The employee was not seeking to exploit customer relationships that he had developed while employed. Rather, the employer was seeking to prevent a competitor from hiring its employees. Expressed a little differently, the employer was seeking to limit its employees’ options in seeking more compensation or better opportunities. In short, the employer was not seeking to prevent unfair competition; it was seeking to prevent competition. But, in Connecticut a non-compete agreement can only be used to prevent unfair competition.