One way employers create problems for themselves is asking the employee to give up too much. That is basically what happened in a new North Carolina Court of Appeals case, Copypro, Inc. v. Musgrove. Copypro spent a lot more money fighting this losing lawsuit than they ever would have getting a clear, enforceable contract that would have protected them against any potential harm when their salesperson, Joseph Musgrove left the company.
The Basic Facts
Copypro is in the office equipment business. They sell and maintain office equipment, but over 90 percent of their revenue is from three to five year leases on office equipment from their eastern North Carolina customer base.
Near the end of 2009, Mr. Musgrove joined the company as a salesperson. He was assigned to Pender and Onslow counties, where Musgrove carried out over 95 percent of his job duties. He did a few deals for friends in other counties which were also included among a laundry list of eastern North Carolina counties where Mr. Musgrove’s non-competition agreement said he could not work for three years after leaving
Copypro for any competing company.
In August 2012, Musgrove took a new job with a competitor after being told his old sales territory with Copypro would no longer be exclusive. The new employer, Coastal Document Systems, is one of Copypro’s competitors but operates solely in Brunswick, Columbus, and New Hanover counties. By way of reference, Wilmington is located in New Hanover County.
Copypro learned Mr. Musgrove had put in a competing bid on an order. Immediately, they filed a lawsuit claiming Musgrove was violating their non-competition agreement. As is typical is a non-compete case, Copypro asked the judge for what is called a “preliminary injunction,” a court order requiring Mr. Musgrove to stop the actions leading to the lawsuit until the lawsuit was over. No work, no pay. That's a big problem for the employee. The opposite result would have been a big financial hit for the employer.
The local judge decided that Copypro would likely win the lawsuit when the evidence was heard. Thus, the preliminary injunction was granted and Mr. Musgrove was ordered to stop selling for Costal Documents Center. In practical terms, he was out of a job in his chosen field.
The Course of The Appeal
The North Carolina Court of Appeals agreed to decide Mr. Musgrove’s appeal before the case was fully decided on the merits. In most instances, that would not have been the case. The Court of Appeals stated that “[a] preliminary injunction is interlocutory in nature,” which means that an order issuing a preliminary
injunction “cannot be appealed prior to [a] final judgment absent a showing that the appellant has been deprived of a substantial right which will be lost should the order escape appellate review before final judgment.” Clark v, Craven Regional Medical Authority, 326 N.C. 15, 23, 387 S.E.2d 168, 173 (1990).”
However, the Court stated that “when the entry of an order granting a request for the issuance of a preliminary injunction has the effect of destroying a party’s livelihood, the order in question affects a
substantial right and is, for that reason, subject to immediate appellate review. See Precision
Walls, Inc. v. Servie, 152 N.C. App. 630, 635, 568 S.E.2d 267, 271(2002).
In other words, not being able to work for any competitor of his old company for three years in 33 counties was too much of a burden to ask Mr. Musgrove to carry until the full trial was over.
Here, a 3 year non-compete was deemed by North Carolina Court of Appeals to qualify.
What The NC Court of Appeals Decided
First, we need to know the basic rule on when an employment non-competition agreement can be enforced.
The agreement must be (1) in writing; (2) cover only a reasonable amount of time and territory; (3) be part of an employment contract; (4) provide reasonable consideration to the employee for accepting its terms; and (5) protect the employer’s legitimate business interest. Where any one of these criteria are not met, the court should throw out the agreement
In Copypro v. Musgrove, the NC Court of Appeals concluded that the non-competition agreement kept the former salesperson from too many types of jobs with Copypro's competitors to be enforceable. The problem was that Mr. Musgrove was not simply prevented from being involved in sales. He was not eligible to drive a truck or sweep the floor for a Copypro competitor in their full 33 county footprint.
Thus, the Court of Appeals held that there was not “ample comptent evidence to support the decision. Wrightsville Winds Townhouse Homeowners’ Ass’n v.Miller, 100 N.C. App. 531, 535, 397 S.E.2d 345, 346 (1990)" and reversed the trial court and thus denied the company the requested preliminary injunction.
How Did Copypro Asking For Too Much Lead Directly To Them Getting Nothing?
In practical terms, that's probably going to be the end of the story. Fighting through a full trial usually chews the timeframe covered by a non-compete agreement.
The Court of Appeals ruled that Mr. Musgrove should not have been barred for all work with competing companies. Otherwise, the agreement would have likely been enforceable.
Here is a good example of where working carefully with a good business or employment lawyer would have been beneficial. When an attorney understands the client’s business, their business needs, and concerns around the particular type of job an employee carries out, the attorney can create a non-competition agreement that would be rock solid.
Instead, a careful lawyer for Mr. Musgrove took a close look after Copypro had rushed to court, and took the company to task. Copypro may have spent a lot of money on trial and the appeal, but you can be sure that a good contract that would have been enforceable would have been a lot cheaper.