Tennessee Business Litigation Lawyers Blog
A recent case involving a non-competition agreement signed by a brick salesman proves the conclusion that, in many Tennessee non-competition agreement cases, the determination of whether or not a former employee should be bound by his or her non-compete agreement turns on very subjective considerations. In point of fact, in that case, the trial court determined that the non-competition agreement was unenforceable: The Court of Appeals of Tennessee then determined that it was enforceable.
For breach of contract lawyers who handle non-compete cases, the case also highlights the importance of whether or not the former employee had access to pricing information, pricing strategies and profit margin information about his or her former employer. One of the two pivotal factors which caused the Court of Appeals to reverse the trial court was that the former employee / brick salesman (“Employee”) had fairly extensive knowledge of his former employer’s pricing structure, margin targets and bidding strategies for brick sales. Notably, Employee even admitted that having such knowledge would give someone a competitive advantage over the former employer (“Employer”) when bidding and quoting brick.
Here are the basic facts of the case:
• Employee worked for Employer for almost eight years as a brick salesman covering the Chattanooga and Knoxville markets
• Both the trial court and the Court of Appeals found that Employer had provided no specialized training to Employee
• The Court of Appeals determined that the pricing of brick was a complicated matter, and that Employee, by virtue of his employment, did have access to information about Employer’s pricing structure, target margins and bidding strategies that would give Employee a competitive advantage, thus making that information rise to the level of trade secrets or confidential information
• The Court of Appeals found that Employee, as the sole representative of Employer in the Chattanooga market for several years, was the “face” of the Employer in that market. (It called this “a most significant fact”)
• Employee voluntarily resigned his employment with Employer
In reversing the trial court, the Court of Appeals first reviewed the framework to be used in Tennessee in determining whether a non-competition agreement should be enforced. The Court of Appeals began its analysis by reciting the policy that non-competition agreements are “disfavored in Tennessee.” While this is the policy in Tennessee, I have read countless cases where Tennessee courts have upheld non-compete agreements after citing this policy. While, technically, non-competition agreements may be disfavored, employers who draft non-compete agreements which are reasonable as to their time and territorial restrictions have a solid track record of having their agreements upheld by Tennessee courts.
The Court of Appeals then pointed out that, under Tennessee law, to enforce a non-compete agreement, an employer must have “a legitimate business interest to be protected.” If it does, nevertheless, an employer’s non-competition agreement will not be enforceable if it is unreasonable as to the length of time it is effective or as to the scope of the territory to which is applies.
So, what facts give an employer a protectable business interest? Tennessee law directs a court to consider the following factors to determine whether or not the employer has a protectable business interest: (1) The amount of specialized training provided to the employee; (2) the employee’s access to trade secrets or other confidential information; and (3) the degree to which the employee’s contacts with customers is such that he or she has become the face of the employer’s company to those customers.
In the case at hand, the Court of Appeals agreed with the trial court insofar as it found that the Employer had not provided specialized training to the Employee. The Court of Appeals pointed out that general knowledge provided to an employee by virtue of his or her employment does not create a protectable business interest on the part of the employer.
After finding that Employer had a protectable business interest by virtue of factors two (2) and three (3) above, the Court of Appeals held that the scope of the non-compete, as the Employer sought to enforce it, was reasonable as to both time and territory. The non-compete period was two years.
I think one can reasonably assume that brick prices fluctuate frequently and that so would Employer’s pricing methods and bidding strategies. So, I would not have been surprised if the Court of Appeals had found that the non-competition agreement was enforceable, but for a period less than two years.