My colleague, Jonathan Orleans, chips in this week with a guest post on a recent Connecticut case about some of the restrictions that employers try to place on departing employees:
Post-employment covenants not to compete and not to solicit frequently include language that prohibits the former employee from “directly or indirectly” engaging in certain behavior, such as offering services to the former employer’s customers or soliciting its employees.
But what does this phrase actually mean? If a new employer – which, after all, is not a party to the covenant – solicits the prior employer’s customers or employees, has the employee “indirectly” engaged in the prohibited behavior?
These questions were addressed in a recent Connecticut Superior Court decision, PCRE d/b/a Prudential Realty v. Unger, 2010 WL 2364267 (Conn. Super. April 30, 2010).
First some background: Adele Unger was employed by Prudential Realty and agreed to a one-year post-employment covenant that she would not “directly or indirectly hire, contract with, induce or attempt to influence any individual who is an employee, independent contractor, agent or representative of [Prudential Realty] to terminate such person’s employment or association with [Prudential Realty] or its affiliated companies.”
Unger left Prudential for a position with William Pitt Real Estate, and told Pitt’s President Paul Breunich that she could not recruit Prudential agents. Nonetheless, Breunich called several Prudential agents to solicit them to join Pitt. Prudential sued, naming not only Unger but also Breunich and Pitt as defendants, and claiming that Breunich’s activities on behalf of Pitt were, essentially, indirect solicitations by Unger.
Prudential argued that “one who is not a party to a noncompete contract can be enjoined from activity prohibited by the contract where the person or entity is operating indirectly for the party to the contract.”
Distinguishing the cases cited by Prudential, the court (Scholl, J.) observed that Unger had not solicited Prudential agents, and there was no evidence that Breunich had used any information supplied by Unger to aid him in his solicitations of Prudential’s employees.
This was not a case where the employee organized a company to do what he could not do individually, where the new employer acted in conscious disregard of the employee’s obligations to the former employer, or where the employee had someone else act on his behalf in violation of the restrictive covenant. The court denied Prudential’s application for a temporary injunction as to Breunich and Pitt.
What lessons can be drawn from this case for employers?
First, in drafting covenants, be specific about the conduct you intend to prohibit. Don’t rely on phrases like “directly or indirectly” to sweep in conduct you haven’t specified. And improve your odds in any claim against a new employer by requiring the employee to inform the new employer of his or her post-employment obligations. (Admittedly, this wouldn’t have helped in PCRE, where Unger volunteered the information to Breunich.)
Second, in enforcing these covenants, don’t overreach. In an industry where movement of sales employees among competitors is a common phenomenon, you’re probably wasting your time and money trying to enforce a restrictive covenant if you don’t have solid evidence that your former employee has actually violated her obligations, or actively directed someone else to do so. Suspicions and accusations about “indirect” violations are not likely to get you the result you want.