Terminated Employee’s Restrictive Covenant Upheld And Injunction Granted
In the restrictive covenant, preliminary injunctive relief case of John Savoy & Sons, Inc. vs. Seyler, PICS Case No. 14-0962, (C.P. Lycoming May 12, 2014) the Honorable Dudley N. Anderson granted a petition for a preliminary injunction to enforce the covenant not to compete or disclose any confidential or proprietary information or trade secrets.
Defendant was previously employed as a sales manager by Savoy from June 4, 2012 through March 6, 2014. Savoy was in the business of manufacturing, selling and distributing furniture for the university/college residence hall and military housing markets. In March 2013, Savoy learned that defendant had used a company credit card for his own personal use and, as a result of discussions between the parties, Savoy allowed defendant to continue his employment there in exchange for several considerations from defendant, including a non-compete agreement. In March 2014, defendant was terminated for refusing to submit to a drug test.
In April 2014, Savoy learned that defendant had taken a sales position with competitor Blue Furniture Solutions, in violation of the covenant not to compete. Savoy’s petition sought a preliminary injunction enforcing the agreement. Defendant argued that the covenant was unenforceable due to duress. He was not given the opportunity to consult with counsel before signing the agreement and was threatened with prosecution if he did not sign.
The court agreed that an agreement not to prosecute a criminal proceeding is “emphatically illegal,” and the threat of criminal prosecution constitutes duress which renders a contract voidable. A transaction that is voidable for duress may be enforceable if it is ratified. The court found that defendant ratified the contract by accepting its benefits (continued employment and $1,000 payment) and remaining silent about the issue for a year. Therefore, the agreement was not unenforceable on this basis.
Defendant also argued that covenant was unenforceable because he was terminated, and pointed to Savoy’s president’s testimony that he was considered a “liability” to the company. While enforcement of restrictive covenants is generally disfavored against employees who are fired, on the theory that the employer views such employees as worthless, enforcement is to be determined on a case-by-case basis and the mere termination of an employee does not bar the employer’s right to injunctive relief.
Defendant was terminated not because Savoy considered him worthless as a salesman, but because he was engaging in activity which violated company policies. In such instance, the employer’s right to injunctive relief survives.
Defendant also contended the covenant was overly broad and not reasonably related to Savoy’s legitimate business interests. The court disagreed. Testimony established that Savoy did business in all 50 states, and had military customers world-wide. Although Savoy’s products were more expensive than Blue’s products, it was in the process of developing a less expensive product to compete with companies like Blue. As an employee of Blue, defendant was selling the same product to the same types of buyers. Defendant testified that since becoming employed by Blue, he had contacted a number of Savoy representatives and offered them information relative to selling for Blue.
The court also rejected the argument that defendant’s “ability to provide for his family and work in an industry in which he has familiarly (sic) and experience outweighs Savoy’s interest in prohibiting (defendant) from competing in an adjacent furniture market.” The court found that in the agreement, defendant agreed that “the geographical and time limitations set forth (in the agreement) are reasonable and properly required for the adequate protection of Savoy’s interests” and that “the remedy at law for any breach by him of the covenants” would be “inadequate” and that Savoy would “have the right to enjoin” him from activities in violation thereof. Defendant was thus estopped from arguing to the contrary. The petition for preliminary injunction was granted.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 37 P.L.W. 593 (June 24, 2014)
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