Employer Could Not Enforce Original Restrictive Covenant Because the Non-Compete in New Employee Handbook Was A Novation And Less Restrictive
In the restrictive covenant, business litigation, employment agreement case of Acero Precision vs. Bonelli, PICS Case No. 14-1767 (C.P. Chester, Oct. 15, 2014) the Honorable Mark L. Tunnell ruled that where plaintiff’s former employee went to work for a competitor, plaintiff could not enforce the non-compete clause in its original agreement. The original restrictive covenant was extinguished by the parties’ less restrictive 2014 agreement. Plaintiff’s petition for a permanent injunction was denied.
From November 2010 until April 2014, defendant James Bonelli, an experienced machinist, engineer and manager in the manufacturing and machining industry with specialized experience, was employed by plaintiff Acero Precision. Plaintiff manufactured and machined parts for the automotive, industrial, analytical and medical device industries. Defendant signed a restrictive covenant that prevented him from being employed in the manufacturing industry for two years after leaving plaintiff unless he relocated beyond a 100-mile radius. His 2010 agreement also contained non-disclosure and non-solicitation provisions.
In late 2013, plaintiff contracted with McCloskey Partners, a human resources company, to revise its employee handbook. It directed McCloskey to include a new restrictive covenant agreement in the handbook and as a separate agreement. Defendant acknowledged receipt of the new handbook in January 2014 and, after initially declining to sign the new restrictive covenant, did so.
The non-compete provision in the 2014 agreement was less restrictive than the 2010 covenant as it was limited to one year and was contingent on plaintiff’s electing, within 30 days of the employee’s separation, to provide the employee with non-compete pay and it disclaimed any non-compete restriction if plaintiff did not do so.
In April 2014, defendant resigned from plaintiff to accept a position with defendant Vistek Medical. Vistek primarily manufactured and machined parts for the medical device industry and was a competitor of plaintiff. Vistek used different approaches to manufacturing than plaintiff and although they both manufactured medical devices, their operations and processes materially differed. They had only one common client whose relationship with Vistek pre-dated defendant’s employment there and continued because of a longstanding relationship between Vistek’s general manager and the client’s president. Defendant did not work on the part Vistek manufactured for that client and Vistek acted to ensure that he had no contact with the client.
After defendant resigned, plaintiff asserted breach of contract claims and sought to enforce the non-compete covenant. The court found that adequate evidence supported the conclusion that plaintiff intended the 2014 agreement, including its non-compete, non-solicitation and confidentiality provisions, to replace the 2010 agreement. The 2014 agreement was a novation, supported by adequate consideration in the form of a more reasonable and favorable one-year non-compete term contingent on payment. The lack of a formal signature by a plaintiff representative had no bearing on its validity of enforceability because defendant, the party charged with performance, signed it.
The court held that because plaintiff did not pay defendant the non-compete pay, he was not subject to the non-compete restriction and there was not breach of the provision. The court also found that plaintiff’s claim for breach of the covenant of good faith and fair dealing was not an independent cause of action in Pennsylvania and was subsumed in the breach of contract claim.
The court determined that plaintiff had presented no evidence of either a misappropriation or the existence of a protectable trade secret. Plaintiff had failed to identify the specific trade secrets allegedly at issue, noting that neither plaintiff’s customers not its approach to production was a trade secret. Further, plaintiff had admitted that it had no evidence of any disclosure or improper use of a trade secret and defendant and Vistek confirmed that no such disclosure had occurred.
Therefore, the court found in favor of defendants on all counts and found that, pursuant to the 2014 agreement, defendant was entitled to attorney fees.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 37 PLW 1084 November 11, 2014
Filed Under: Business Litigation, Restrictive Covenants: Employment Contracts
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