While courts are remiss in enforcing non-compete and non-solicitation agreements since they are restraints on trade, such covenants are nevertheless enforceable if the language and terms are narrowly crafted. When business competitors poach valuable employees the damage to the business can be severe. For this reason, it is now common for these covenants to be inserted in employee and executive agreements for high-ranking members of businesses and their sales force.
Recently, the Court of Appeals of Indiana upheld a preliminary injunction against former workers of an engineering firm who joined a competitor and engaged in competitive practices against their former firm. In Hannum Wagle & Cline v. American Consulting, Inc., Marlin Knowles (“Knowles”), a former owner and employee of American Consulting, Inc. (“American”) resigned from his position as Vice-President of Sales Administration and joined a competitor, Hannum Wagle & Cline Engineering, Inc. (“HWC”) as its Vice-President of Operations.
While at American, Knowles was responsible for overseeing American’s sales and he was actively involved in obtaining business for the company and developing client relationships. He frequently attended business development activities and networked with clients at golf outings, sporting events, and industry conferences. Knowles was originally hired as an employee; but, he received an offer of ownership during his tenure at American. Knowles accepted American's offer and at that time executed an Employment, Non-Disclosure, and Non-Competition Agreement which restrained him from competing for a period of 2 years if he left the company.
At HWC, Knowles had no formal contact with his former clients and was not involved in the sales process. However, he continued to attend industry related networking events, sports games, and golf outings. Knowles also contacted several of his former colleagues at American and assisted them in applying for positions at HWC. American discovered this by accidently receiving an e-mail that disclosed this information by one of the departing employees. Thereafter, American filed for a preliminary injunction to enforce the restrictive covenants against the former employees and Knowles. The Court ultimately upheld that business development activities, like industry networking or golf outings, while not directly related to the business are nevertheless considered competitive acts. Furthermore, these activities can result in a diversion of business opportunities for a company that can constitute as an irreparable harm to justify a preliminary injunction.
The Court also considered Knowles laches argument because American had knowledge of his competitive acts for 10 months before filing suit. The Court acknowledged that laches may apply as an affirmative defense in these circumstances if there is an undue delay in bringing a suit. However, it found that the trial court did err in applying it in this instance.
Hannum, Wagle, & Cline Engineering, Inc. v. Am. Consulting, Inc., 2016 Ind. App. LEXIS 425 (Ind. App. 2016).
Alex Passo and Patterson Law Firm, LLC handle commercial litigation, including enforcing and defending claims related to restrictive covenants, throughout Illinois and Indiana. Alex can be reached at (312) 750-1820 or email@example.com.