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"Directly or Indirectly" Means Just That ....

By Jillian M. Collins

A federal district court in Florida granted a preliminary injunction prohibiting five former employees of Mainline Information Systems from soliciting certain customers and using confidential information in violation of their employment agreements and prohibiting the employees’ new employer and its senior vice president for sales from assisting the employees in any disclosure of Mainline’s confidential information or any improper solicitation of Mainline’s customers.  In Mailne Information Systems, Inc. v. Tad C. Northcott, et. al. the court found that Mainline had established that it was likely to prevail on its claims and to suffer irreparable harm from further breaches by the former employees of their employment agreements with Mainline.  The record was clear, according to the court, that the employees had violated their employment agreement.

The former employees began working for a direct competitor, Sirius Computer Solutions, after they resigned from Mainline. The employees were all prohibited under their Mainline employment agreements from disclosing Mainline’s confidential information for two years after their termination dates and from directly or indirectly soliciting their former Mainline customers or any Mainline employees for one year after their termination dates.  The court specifically noted that one of the employees violated his employment agreement by having other employees at the company “front” the solicitations while he “worked in the background.”  The court also held that Sirius’s senior vice president for sales had assisted the former employees in soliciting their Mainline customers and participated in a joint effort to improperly use Mainline’s confidential information.

Notably, the agreements explicitly stated that if the employees violated any of these restrictive covenants, then the restriction provision would automatically be extended for one year from the date on which the employee permanently ceased violation or for one year from the date of entry by a court of an order enforcing the covenant, whichever was later.  One of the former employees admitted that after one year at Sirius, he began soliciting his former Mainline customers because he believed his non-solicitation restriction had lapsed.  The court, however, relied on the continuing violation provision and held that because the employee had violated his non-solicitation restriction during the year following his termination, he was actually prohibited from soliciting customers for one year from the last violation.

This case highlights two important considerations for non-competition, non-solicitation, or confidential information provisions: (1) the “direct or indirect” language, which protects a company even when a former employee is facilitating solicitations by a coworker; and (2) the continuing violation provision, which extends the restricted period if the Court finds a violation.  These provisions can provide employers with vital remedies against employees who breach their restrictive covenants.

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Martha Zackin