Non-Compete Clause Enforced In An Independent Contractor Agreement
In the business law and business litigation case of Fitness Essentials, LLC v. Nil, PICS Case No. 15-0898 (Pa. Super. June 2, 2015) the Honorable Anne E. Lazarus, writing on behalf of the Pennsylvania Superior Court, ruled that a non-compete clause in a independent contractor agreement was enforceable, finding that appellant contractor knowingly and willingly entered into independent contractor agreements with restrictive covenants and held that an independent contractor relationship was sufficiently analogous to an employment relationship.
Appellant David Nill appealed from the order of the trial court granting a preliminary injunction to appellee Fitness Essentials, LLC. Fitness was in the physical fitness training business, and retained appellant as an independent contractor to provide training services to Fitness’ clients. The parties’ 2004 independent contractor agreement contained a non-compete clause that prohibited appellant from soliciting any clients of Fitness for a period of two years after termination. Appellant was terminated after refusing to sign a new independent contractor agreement with a more restrictive non-compete clause, but despite the non-compete clause in the 2004 agreement appellant continued to train many of his former Fitness clients.
After filing cross-complaints, Fitness filed a motion for a preliminary injunction to enforce the non-compete clause, which was granted by the trial court. Appellant asserted that the trial court erred in granting a preliminary injunction based on the non-compete clause, arguing that such a clause could not be enforced from an independent contractor agreement, that it was unsupported by consideration, and that Fitness did not establish all of the criteria for a preliminary injunction.
The court first held that a non-compete clause could be enforced as part of an independent contractor agreement. The court noted that previous cases had held that non-competes court apply to situations outside the employer-employee relationship. Because the independent contractor agreement was sufficiently analogous to an employment relationship, the same equitable principles relating to restrictive covenants could apply, given that Fitness sought to prevent exploitation of its infrastructure and clients.
The court further held that there was sufficient consideration to support the independent contractor agreement and its non-compete clause. Although the court disagreed with the trial court’s rationale that the 2004 agreement constituted “initial entry into a new contract” such that appellant’s job served as adequate consideration, the court found that the 2004 agreement provided appellant with a raise in excess of his request as well as expanded responsibilities with Fitness, which the court held served as adequate consideration for the non-compete clause.
The court rejected appellant’s argument that the existence of a liquidated damaged clause in the 2004 agreement negated the need for a preliminary injunction for the non-compete, holding that the injunction was proper to prevent harm to Fitness’ market advantage and opportunities, which could not be adequately calculated.
The court also rejected appellant’s contention that greater injury would not result form refusal of an injunction because the non-compete was overbroad, noting that while Fitness had lost some customers and market advantage, and appellant also had lost some customers, appellant was still free to train clients not associated with Fitness. The court also found that a preliminary injunction returned the parties to the status quo ante, noting that appellant continued to train some of Fitness’ clients after being terminated.
Finally, the court rejected appellant’s argument that the injunction was not reasonably sued to abate the offending activity, holding that the non-compete and the injunction enforcing it were necessary to protect Fitness from cannibalization, while appellant remained free to train other clients not associated with Fitness.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38 PLW 585 (June 23, 2015)
Filed Under: Independent Contractor Agreement: Labor and Employment; Non-Compete Clause; Preliminary Injunction.
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