Employers who seek to enforce agreements with employees that contain post-employment non-competition or non-solicitation covenants should be aware that a "one size fits all" agreement may be difficult, if not impossible, to enforce, particularly if the provisions are not revised over time to fit an employee's changing duties and responsibilities. A recent federal district court ruling in a disputed restrictive covenant matter aptly illustrates the potential pitfalls in attempting to enforce an agreement that was not revised as an employee progressed up the ladder in the organization.
In McGough v. Nalco Co., a federal district court in West Virginia declined to grant an employer's request for a preliminary injunction against a former employee, declaring that the company was unlikely to succeed in efforts to enforce certain post-employment restrictive covenants.
The case involved a dispute between Nalco, based in Naperville, Illinois, and an employee who was hired at age 24 to work as a sales representative for the company in the coal fields of Alabama. The employee eventually built a 26-year career with the company, taking on increasingly more challenging and senior roles, including account manager, area sales manager, and industry technical consultant.
The agreement in question was signed in 1978. Nalco required McGough to sign a standard-form Field Representative Agreement that contained certain post-employment restrictive covenants but was not job-specific. Significantly, even as he was promoted and transferred among groups within Nalco, he did not sign any new contracts regarding his employment or competition and his original agreement was not supplemented or amended.
After about 26 years with the company, McGough decided to resign, citing the intense workload he faced in his role as an industry technical consultant and the fact that most of his closest colleagues and friends had left the company due to layoffs, resignations or retirements. He noted that the job had become "drudgery" to him and he no longer looked forward to going to work. The company tried to get him to change his mind about leaving and offered to hire him as a part-time consultant to work three days a week. However, the company would not give him details of the offer until he signed a five-year confidentiality agreement, which he declined to do.
After McGough took a job with a competitor, he filed a declaratory judgment action in West Virginia seeking a determination of the parties' rights under the original Field Service Agreement. Nalco filed a counterclaim for breach of the agreement and sought enforcement through a preliminary injunction. In denying the company's preliminary injunction motion, the court focused closely on the equities of enforcing the agreement signed so long ago. "Having entry-level, at-will employees sign non-competition covenants intended to freely float throughout the history of their relationship with a company regardless of new positions, benefits, and responsibilities, is grossly unfair," the court stated. Significantly, the court noted as to the post-employment restrictive covenants that "enforceability of such provisions in equity must be determined at the time the relief is sought."
The court added: "[E]quity prevents enforcement of these agreements when an employee's position has changed as dramatically as Mr. McGough's did from the time he signed the agreement as a twenty-four year old, entry-level employee to the time he resigned as one of the top men in his field."
The lesson to be learned from this recent ruling is that employers who wish to retain the benefit of post-employment restrictive covenants should review and revise or amend agreements with such provisions to fit an employee's changing roles and circumstances.
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