Rosen Law Office

Agreements protecting your business from competition should be comprehensive.

When a provision isn’t broad enough, competitors can get around it.  A full-service hair salon had a lease that prevented the landlord from leasing to other companies in the same business.  When another stylist moved into the plaza, the salon sued.  The Superior Court refused to prevent the new competitor from opening, because it was “only a limited service hair cutting salon.”  T.T.K., Inc. v. Columbia Speedway Plaza Member, LLC.   The original tenant, a “full-service” salon, could have protected itself by insisting on a provision barring any hair-cutting business from operating.

On the other hand, if a noncompetition provision is too broad, a court will enforce it to the extent reasonable.  A sales rep agreed not to compete with his employer in the U.S. or Europe.  After being trained and learning the employer’s secrets, he went to work for a competitor.  The employer sued.  The sales rep argued that he had mainly worked in Florida, so it wasn’t fair to restrict his activities worldwide.  The court agreed and narrowed the scope of the agreement to certain customers in Florida.

The salesman then said that—because the original provision had been too broad to enforce—he could not be liable for breaching it.  He couldn’t be liable for breaching the agreement until after the court modified it.  The First Circuit disagreed, saying the salesman wasn’t entitled to “one free breach.”   The proposition “would eviscerate all but the most narrowly tailored non-competition agreements, since a modification of any term of the provision would justify a breach of all its terms.”  Astro-Med, Inc. v. Nihon Kohden America, Inc., 2009 U.S. App. LEXIS 23298 (1st Cir. R.I. Oct. 22, 2009).

Courts are sensitive to the fact that employees don’t read these agreements carefully and aren’t usually in a position to negotiate them.  Employers should not abuse their bargaining power.  But within reason, it’s better for noncompetition agreements to be broad than narrow.

–Joel Rosen