Tuesday, January 02, 2007, 3:17 PM

Employer's Noncompete Suit Go Forward Despite Broad Geographic Restriction Potentially Covering Two Continents

Today in Okuma America Corp. v. Bowers the COA ruled against an employee in a case concerning a covenant not to compete. Bowers was a Vice President of Customer Service at Okuma America. He resigned and went to work for a competitor. Okuma America sued him, contending he violated a 6-month covenant not to compete. The trial court (Mecklenburg County's Judge Richard Boner) dismissed the action, finding that the covenant was "overly broad and unenforceable as a matter of law." The COA reversed, holding that the covenant's enforceability rests on questions of fact and can't be determined as a matter of law under Rule 12(b)(6).

The crux of the case concerned the geographic restriction. It extended to areas in which Okuma America "does business," and because Okuma America operates throughout both North and South America, the geographic effect of the restriction was broad, potentially extending throughout both continents. But when viewed in conjunction with the six-month duration, the Court said, it was not unreasonable per se. The Court emphasized three points. First, the duration was six months. Second, the covenant's language restrained Bowers from working for a competitor in a related capacity (customer service or machine tooling), meaning it permitted him to work for a competitor in a capacity unrelated to Okuma America's business. Third, Bowers allegedly occupied a senior position at Okuma America. On this score, the Court concluded that "the nature of the employee's duty and his knowledge of the employer's business operation" should be considered when examining the time and geographic restrictions of a covenant not to compete.

The Court held that whether the geographic effect of Okuma America's client-based restriction was excessive rests on factual questions concerning "Bowers' actual contacts with customers, the nature of his duties, the level of his responsibilities, the scope of his knowledge, and other issues relating to how closely the geographic limits fit within Mr. Bowers's work for Okuma America."

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