Restrictive Covenant And Noncompete Agreement Upheld And Equitably Enforced

In the business litigation case of Bengal Converting Service Inc. vs. Gibney, PICS Case No. 16-5032 (Pa. Super Court. April 19, 2016) the Honorable John L. Musmanno, writing on behalf of the Pennsylvania Superior Court ruled that the trial court properly found that the company Bengal Converting Service Inc. was entitled to injunctive relief and that equitable enforcement of the restrictive covenant and the noncompete agreement in appellant’s employment agreement with Bengal was necessary to protect Bengal against wrongful appropriation of its customer relationship by appellant.

Appellant was employed by Bengal as an account manager and was later promoted to vice president of sales. Later his pay was reduced and was paid as an independent contractor by an affiliate of Bengal but continued to do the same job. He was fired in February of 2015. Bengal filed a compliant for emergency injunction relief on April 30, 2015, based on appellant’s violation of confidentiality and noncompete covenants in his employment agreement with Bengal. The trial court granted a temporary preliminary injunction, and appellant appealed.

On appeal, appellant contended that he was employed by Bengal in September 2013 as an at-will employee and that on January 1, 2014, Bengal unilaterally converted him to subcontractor status and drastically reduced his pay and thus terminated his at-will employment status. He argued that the two-year noncompete covenant thus terminated as of Dec. 31 2015 and that the trail court erred in concluding that he continued to be employed by Bengal under the terms of the employment agreement until May 15, 2015, and extending the noncompete restriction until May 15, 2017.

The court found reasonable grounds for the trial court’s determination that the employment agreement was between appellant and Bengal and its affiliates and the change in employment status form an employee of Bengal to a contractor of an affiliate did not operate to terminate the employment agreement. Further the trail court also reasonably found that the appellant continued to use a car, cell phone and computer supplied form Bengal and was required to work fixed hours and Bengal’s place of business.

Appellant correctly argued that trail court erred, and the trial court agreed in not limiting the scope of the injunction to 200-mile restriction in the covenant not to compete and the court modified the injunction to reduce 200 mile restriction. Appellant also contended had unclean hands because it never provided the life insurance policy that was promised but, the trail court reasonably found the evidence did not show who was to play for insurance.

Appellant also contended that Bengal had unclean hands, because it never proved the life insurance policy it had promised, but the trial court reasonably found that the evidence did not show who was to pay for the insurance. Appellant also argued that, to the extent that confidential information was in jeopardy the injunction sufficiently protected that information without the need to also bare hire from gainful employment. He asserted that he did not need to use any Bengal confidential information and that he had access to the buyers and sellers in the industry through sources other than the Bengal. The trial court reasonably found that appellant’s assertion about other ways to find customers was not credible, that appellant was selling to Bengal customers and that he gained entrée to them through his employment at Bengal.

Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 39 PLW 421 (May 3, 2016)

Filed Under: Non-Compete Agreement; Injunctions

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