Tuesday, April 07, 2009, 2:21 PM

COA Invalidates Non-Compete

Today the NC Court of Appeals (COA) held a non-compete agreement unenforceable because it wasn't reasonably tailored to protecting the employer's legitimate business interests. The case is Hejl v. Hood, Hargett & Assoc., Inc.

Hejl was an account rep for insurance services. Fourteen years after Hejl started working for HHA, HHA had him sign a 2-year non-compete agreement. For new consideration, HHA paid, and Hejl accepted, $500.00. Hejl persuaded the trial court that $500 was not adequate and valuable consideration for the obligation. The COA disagreed and held, "Our Courts have not evaluated the adequacy of the consideration. Rather, the parties to a contract are the judges of the adequacy of the consideration." The COA reiterated that the "slightest consideration is sufficient to support the most onerous obligation" absent fraud.

But the COA upheld the trial court's determination that the agreement was overbroad and not reasonably tailored to protecting HHA's legitimate business interests. First, the territory was too broad. The agreement defined the territory as Charlotte and any other place in North or South Carolina in which HHA "is engaged in rendering its services or selling its products." This two-state territory wasn't limited to locations where Hejl had customers at HHA; it included areas where he didn't have any personal knowledge of HHA's customers. Second, the agreement prevented Hejl from offering insurance services to "any person, firm or entity to whom [HHA] has sold any product or service, or quoted any product or service." (emphasis added). The restrictive covenant thus went beyond current and former customers of HHA and reached anyone to whom HHA had merely quoted a product or service. The COA held that HHA didn't have a legitimate business interest in extending the restriction to potential clients.

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