En Garde

Case Raises Issues Relating

To Non-Competition Agreements

A complaint of unprofessional conduct was initiated by a permit-holder company against an ex-employee member. The complaint asserted violation of a non-competition agreement which the member had signed at employment and that the member was now using confidential information respecting the business of the company to enhance solicitation of work from clients of the permit holder and others.

In conjunction with the complaint by APEGGA, the company launched a civil suit, and the member, in turn, counter-sued. It is interesting to note that a settlement ensued from the civil activities, following which the company requested withdrawal of the complaint.

The Investigative Committee did not accept the request for withdrawal of the complaint, as the initial complaint contained serious allegations of unprofessional conduct by the member.

During the continuation of the investigation, it was determined that the signature page of the non-competition agreement had been removed by the member from the company personnel file at the time of his departure from the company. The member admitted that it was an unprofessional act on his part. Another segment of the allegations suggested the member was soliciting clients of the company prior to departure; this was denied by the member and could not be substantiated by the company. Further during the investigation, the company admitted that the complaint was laid to exert pressure in the civil action.

It was determined by the Investigative panel, with the assistance of legal counsel, that the non-competition agreement was most likely non-enforceable. The member had not been given the opportunity to discuss the agreement with counsel prior to being required to sign. Additionally, it was determined that the business of the permit-holder company was not proprietary, but was all available in the public domain.

It was the opinion of the Investigative Committee and APEGGA’s legal counsel, that the limitations outlined in the agreement were unreasonable with respect to time limitations, area covered and activities prohibited.

The complaint was dismissed with a letter of caution to the member respecting removal of file documentation as bordering on unprofessional conduct. The complainant did not appeal the decision of the Committee.

Of additional interest to the membership, outside of the events of this particular case, is the content and enforceability of non-competition clauses in employee agreements.

Agreements set out obligations, restrictions and responsibilities between employer and employee. As a general rule, such agreements should meet the following characteristics:

1. The contract is otherwise enforceable and has not arisen as a result of fraud, duress, etc.;

2. There is a legitimate proprietary interest of the employer protected;

3. The terms of the restraint are clear, certain and not vague;

4. The restraint is reasonable with respect to time, spatial area covered, nature of activities prohibited, etc.;

5. The restraint is reasonable in the public interest.

In addition to legitimacy of proprietary interest protection, imposition of an extended limitation clause in the event an employee resigns, could be challenged. It is suggested that it is unreasonable to extend a limitation across the country or to anyone who has previously had business with the employer.

Furthermore, recent Supreme Court decisions have indicated that the maximum duration of a non-competition clause is two years. P