A recent case out of the Southern District of Georgia provides an interesting review of how many courts in the US view non-compete agreements. The case is AmSpec, LLC, v. Richard Calhoun; Dung Hoang; Carl Crawford; Victor Brown; And Camin Cargo Control, Inc.
AmSpec is a New Jersey limited liability company in the business of testing and inspecting petroleum and petrochemical that filed a lawsuit against four of its former employees, Calhoun, Hoang, Brown, and Crawford, as well as their new employer, Camin Cargo Control, Inc. (“Camin”). In doing so, AmSpec claimed that the former employees committed numerous unlawful acts when leaving AmSpec’s employment to work for Camin, a direct competitor of AmSpec.
The defendants, Calhoun, Hoang, and Crawford all previously worked for AmSpec’s office in Savannah, Georgia. As a condition of their employment with AmSpec, each of the defendants signed identical contracts titled “Agreement Relating to AmSpec’s Trade Secrets and Proprietary and Confidential Information” (“the Agreements”). Among other things, the Agreements contained identical clauses that provide:
[D]uring the term of my employment and for the 12 month period following my termination of employment with [Employer], for any reason or no reason and whether employment is terminated at the option of me or [Employer], I agree and covenant not to engage in any Prohibited Activity within any State to which I was assigned to work during my last 12 months of employment at [Employer].
For purposes of this non-compete clause, “Prohibited Activity” is activity to which I contribute my knowledge, directly or indirectly, in whole or in part, as an employee . . . or any other similar capacity to an entity engaged in the same or similar business as [Employer], including those engaged in the business of petroleum and petrochemical laboratory, inspection and analysis services. . .
In early 2022, the 3 defendants left their employment with AmSpec and started working with Camin. In its complaint, AmSpec claims that the defendants breached the Agreements in numerous respects through their work with Camin. As to each of the defendants, AmSpec claims that “[t]he restrictive covenants contained in the [employee’s] Agreement remain in full force and effect, and [the employee], for good consideration, remains obligated to comply with the restrictive covenants. By accepting employment with Camin . . . [the employee] is directly competing with AmSpec and has breached the [employee’s] Agreement.”
During its review, the court primarily focused on two elements of the non-compete agreements:
First, most courts will only enforce non-compete agreements when there is a legitimate business reason to do so because judges are reluctant to stop individuals from earning a living. However, the Agreements in this case seemingly prohibit employees from working for competitors, in any capacity. Indeed, the defendants argued that the language “prohibits them from working in any capacity for any entity engaged in the same or similar business as Plaintiff, even if the work is not competitive with Plaintiff’s business—including, for example, working as a secretary or janitor.”
Second, the Agreements define “Prohibited Activity” as an activity to which an employee contributes their knowledge, directly or indirectly, in whole or in part. Thus, as written, the defendants would not be able to use any knowledge they obtained from any source during their lives, to a competitor of the Plaintiff.
Considering both points, the court concluded that “the practical effect of the Noncompete Clauses is a prohibition against Defendants working, consulting, or even volunteering with [Employer’s] competitors in any capacity. The court cannot envision a position in which an employee could work for a company without “contribut[ing] [the employee’s] knowledge, directly or indirectly, in whole or in part” to that company.” Therefore, the court determined that the non-compete was “overbroad and unreasonable.” Additionally, the court declined the opportunity to revise the noncompete to make it reasonable and enforceable.
So, what does this mean? Well, the general rule is that non-compete agreements should be narrowly drafted (in scope, geography, and duration). Further, companies should use them only when they have a legitimate business reason.
Finally, it’s important to remember that there are alternatives to non-competes, like non-solicitation or confidentiality agreements, that companies should consider instead of non-competes. Not only are these alternatives generally less regulated across the country, but, given the narrower scope of these alternatives, they are more likely to reasonably protect the business’s legitimate interests, which ultimately means that a court is more likely to enforce them.
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About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://