Covenants Not To Compete

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This case interpreted South Carolina law — different than North Carolina law — on the enforceability of a confidentiality agreement that the Defendant argued was overly broad.

The South Carolina precedent is Carolina Chemical Equipment Co. v. Muckenfuss, 471 S.E.2d 721 (S.C. 1996), where the South Carolina Supreme Court  held that a broad confidentiality agreement, which would have the effect of a covenant not to compete, will be subject “to the same scrutiny as a covenant not to compete.” The confidentiality agreement at issue in Muckenfuss prohibited the use…

Continue Reading Covenant Equipment Corp. v. Forklift Pro, Inc., October 3, 2008 (Tennille)(unpublished)

The North Carolina Business Court rejected a novel argument regarding the validity of post-employment consideration for a covenant not to compete.  It also dealt with the issue of the validity of a summons issued in the wrong name.

On the non-compete side, Plaintiff signed the non-compete with the cleaning company for which she had worked three years after she began employment.  Defendant argued that it had held off from firing the Plaintiff in exchange for her execution of the agreement, and that this was valid consideration.

Judge Tennille disagreed, holding:

"The Court

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Continue Reading Bolick v. Sipe, July 22, 2008 (Tennille)(unpublished)

The Court denied a Motion for a Temporary Restraining Order.  The Motion sought enforcement of covenants not to compete executed by the Defendants, who were loan officers with the Plaintiff, a mortgage broker.

The covenants stated that the Defendants:

will not directly or indirectly, in any capacity work for any company, entity or individual, including himself/herself, who originates or sells residential housing loans in any state in which LO has originated a loan in the six (6) months preceding the termination of LO’s employment with the Company [Integrity].

The Court…

Continue Reading Integrity Financial Services, LLC v. Gutierrez, October 12, 2007 (Diaz)(unpublished)

Service of process can be made by leaving the Summons and Complaint at the Defendant’s residence, even though not in literal compliance with Rule 4, if the Defendant has evaded service.

The Defendant will waive an objection to service (and to jurisdiction) by filing a Notice of Designation to the North Carolina Business Court, because "the filing of a Notice of Designation in an action constitutes a general appearance for the purpose of personal jurisdiction."  To keep such objections alive, the Notice of Designation must contain an objection to personal jurisdiction. 

On a covenant…

Continue Reading Covenant Equipment Corp. v. Forklift Pro, Inc., 2008 NCBC 10 (N.C. Super. Ct. May 1, 2008)(Tennille)

The Court granted a preliminary injunction on a covenant not to compete even though defendant denied that he had signed the agreement and presented a handwriting expert who testified that his signature had been forged. The Court found that New York law applied to the covenant, that New York law permitted blue pencilling, and that it therefore could modify the scope of the restriction.

Full Opinion

Brief in Support of Motion for Preliminary Injunction

Brief in Opposition to Motion for Preliminary Injunction

Reply Brief in Support of Motion for Preliminary Continue Reading Hilb Rogal & Hobbs Co. v. Sellars, January 29, 2008 (Diaz)(unpublished)

The Court discussed the consideration element of a post-employment covenant not to compete, nothing that an increase in compensation or a job promotion can be sufficient consideration.

The Court held the non-compete at issue invalid for other reasons, however, involving its temporal and geographic scope. First, the Court held that the covenant prevented the defendant from having even an indirect ownership in a competing company. It therefore did not protect a legitimate business interest of the former employer.

The Court futher found the time period of the restriction to be…

Continue Reading Edgewater Services, Inc. v. Epic Logistics, Inc., October 22, 2007 (Jolly)(unpublished)

Defendant had entered into a covenant not to compete with his employer, BBF. The assets of BBF, including its contract rights, were acquired by GDX. GDX then terminated defendant’s employment per the agreement, and hired him directly. There was no new non-compete agreement entered into directly between GDX and defendant. Years later, GDX filed for bankruptcy, and its assets were purchased by the plaintiff.

The Court held that a covenant not to compete can be assigned as the part of the sale of a business. Therefore, GDX would have been…

Continue Reading Better Business Forms & Products, Inc. v. Craver, 2007 NCBC 34 (N.C. Super. Nov. 1, 2007)(Tennille)

The Court denied a motion for preliminary injunction on two covenants not to compete.  It found that one covenant was overly broad, since it had no geographic scope whatsoever.  Another covenant was also overly broad, as it restrained the defendant from working for a competitor in any capacity at all, including as a security guard or a custodian.  The defendant had been plaintiff’s Director of Software Engineering. The Court refused to blue-pencil the covenant. 

The covenant was also invalid becasue it unreasonably prevented the defendant from having an interest in a…

Continue Reading Digital Recorders, Inc. v. McFarland, 2007 NCBC 23 (N.C. Super. June 29, 2007)(Diaz)

Plaintiff’s former employee was subject to restrictive covenants in an Amended Employment Agreement. He was also subject, however, to what he claimed were conflicting restrictions in a subsequently executed Stock Purchase Agreement. The former employee asserted that the claims under the Amended Employment Agreement should be dismissed.

The Court denied the Motion and struck the employee’s defense on this basis. It held that the restrictive covenants, although not consistent, could be enforced concurrently, and that there was not a novation or a substitution of the contract. Nor did the merger…

Continue Reading Wachovia Insurance Services, Inc. v. McGuirt, 2007 NCBC 3 (N.C. Super. Ct. Feb. 13, 2007)(Diaz)

Plaintiff, the former employer of the defendant insurance broker, sued to enforce his amended employment agreement. Defendant moved to dismiss, claiming that the agreement had been superceded by an exit agreement, that a later stock purchase agreement had served as a novation of the employment agreement, and finally that the non-competition provisions in the employment agreement were unenforceable.

The Court rejected the first argument, which was premised on the presence of a merger clause in the exit letter. The Court held that in order to determine the impact of the…

Continue Reading Wachovia Insurance Services, Inc. v. McGuirt, 2006 NCBC 23 (N.C. Super. Dec. 19, 2006)(Diaz)