Contrary to Popular Opinion, North Carolina Courts Will Enforce Non-Competes
Employers regularly report that they are not convinced of the utility of non-compete agreements because “courts don’t enforce them.” Their distrust is well-earned because judicial opinions often state that non-compete restrictions are not favored. Two recent decisions issued by the North Carolina Court of Appeals on the last day of 2014, however, make clear that, in appropriate situations, non-competes will be enforced.
In Premier Resources of N.C. v. Kelly, Kelly had been employed by Premier, a staffing agency, in a customer-facing position for several years. When Kelly was approached by Beacon Hill Staffing Group, a competitor, and explained that she believed that she was a party to a non-compete with Premier, Beacon Hill told her not to worry. After she accepted the job with Beacon Hill, Kelly waited a month before she resigned from Premier because she did not want to lose earned commissions. Prior to her last day with Premier, Kelly collected customer contact information, and, after her resignation, she promptly contacted those customers to advise them of her new position.
Kelly was a party to a non-compete that prevented her from working for a competitor in a similar capacity in certain counties for two years. Kelly argued that the non-compete was too broad and unenforceable because she had performed no work in one of the restricted counties, but the Court rejected that argument by applying North Carolina’s “blue pencil” rule to strike that county from the restriction. In response to Kelly’s argument that an injunction was improper because Premier had not shown damage, the Court explained that Premier was not required to prove that it already had suffered damage, just that the threat of irreparable harm in the absence of an injunction was likely. Accordingly, after concluding that the non-compete restriction was reasonably necessary, the Court affirmed the entry of a preliminary injunction that prevented Kelly from breaching that restriction.
In TSG Finishing v. Bollinger, Bollinger was a long-time employee of TSG (and its predecessor), which was in the business of fabric finishing. Bollinger held a customer-facing position in which he regularly collected and created information concerning individualized customer preferences. Bollinger resigned from TSG to accept a similar position with ACG, a direct competitor that shared customers with TSG and was located only five miles away.
Bollinger was a party to a non-compete that prohibited him from working in the textile finishing field for two years, nationwide. Applying Pennsylvania law, which was not dissimilar from North Carolina law, the Court held that the non-compete was enforceable, specifically noting the depth of Bollinger’s customer-related experience with TSG, as well as the fact that he voluntarily left his employment. The Court concluded that the restriction on Bollinger’s employment opportunities in the textile-finishing field did not render him unemployable, despite the fact that he had spent his entire career in that field. Accordingly, the Court ordered the issuance of a preliminary injunction to prevent the breach of the non-compete.
Notably, the Court also concluded that TSG had established that it was likely to succeed on its trade secret misappropriation claim, despite the absence of evidence of actual misappropriation. According to the Court, the fact that Bollinger would be performing a similar job for a direct competitor with some of the same customers was sufficient “circumstantial evidence” of threatened misappropriation to support an injunction. While the Court did not expressly apply (or even mention) the “inevitable disclosure” doctrine, it certainly has provided additional support for injunctive relief arguments in this context.
Of course, the results in both of these cases are driven by the relevant facts, and in this area of the law, results are particularly difficult to predict because the outcomes are so fact-dependent. Nonetheless, they serve as a clear reminder that, while non-competes may be “disfavored,” they are a useful tool that should be considered by employers when they are taking steps to safeguard their business.