In the first week of April, Judge Elizabeth Wolford of Rochester ruled that the noncompete clause that Joshua Bouk had signed for Veramark Technologies was too broad and did not have to be enforced in this instance.
Bouk had originally worked for Veramark and had signed a non-compete clause. The clause stated that Bouk could not use confidential company information, solicit Veramark customers, or compete with Veramark for 12 months after he left the company. Shortly after, Bouk was hired by Cass Information Systems, Inc. and signed an agreement that he would not use Veramark’s confidential information against them when selling to customers. Regardless of this, Veramark filed a suit to bar Bouk from working for Cass.
Judge Wolford decided that this suit was unnecessary. She used the precedent BDO Seidman v. Hirshberg, 93 NY2d 382 (1999) in her argument that any noncompete that is written too broadly for the general purposes of preventing competition won’t be enforced. In fact, in using that previous appeals case, she went so far as to say that this was New York’s stance on the law.
Veramark believed that having Bouk employed by a competitor would end up hurting its public relations. They tried to paint him as untrustworthy. The plainiffs representing the company used the relatively short amount of time before he started working for Cass (he left Veramark on January 31 and began working for Cass on February 3rd. However, Judge Wolford would not accept that argument without some evidence of misuse of information to back it up.
The noncomplete clause, as an idea, is generally regulated at the state level. For instance, New York’s law does allow for noncompete, but is generally skeptical of claims against it. Other states (like Oklahoma and North Dakota) do not allow these clauses in any form. Meanwhile, a state like Florida allows companies to protect against any privy information or trade secrets, important customer relationships, or any extraordinary training. However, they do not hold the new hiring company liable for any violations of the noncompete form. Florida courts believe that an employee is predisposed to violate the noncompete before the new hiring company chooses to hire them. Therefore the employee is the one liable.
So what happens when this noncompete idea crosses state boundaries? For instance, what if a website based in Wisconsin is trying to sell hiking shoes for women. They have a list of vendors and return customers that are worth a fortune. One of their employees quits, signs a noncompete, and then decides to create his own website based in North Dakota that also sells hiking boots. Inevitably, the original hiking boots company loses a few of its return customers to this new site. Does that original website have any recourse? The answer is muddy at best.
Many court cases try to decide which state has the greatest interest in the case. If a suit is filed in North Dakota, but the courts decide the issue is more related to Wisconsin, the case may not make it far.
California has had a couple of interesting cases dealing with this. For instance, in Advanced Bionics v. Medtronic (2002), the California Supreme Court ruled that it lacked the jurisdiction to enjoin litigation in another state. In this case, a California resident was involved in a noncompete clause based in Minnesota. Because the suit and the noncompete were involved in a different state, California allowed Minnesota to enforce the clause as it saw fit.
It all makes for an interesting decision on whether or not to enforce a noncompete. If you’re an employer and your state allows it, a noncompete clause makes great sense. However, if a former employee decides to breach this clause, the decision on whether to enforce it becomes the more difficult strategic decision.