Written by Jennifer B. Rubin
There is no such thing as “per se” unenforceability of non-compete agreements (with a few notable exceptions). Instead, a court will enforce a non-compete if it meets whatever criteria a particular jurisdiction establishes – those criteria typically involve some combination of facts that show that a post-employment covenant is reasonably tailored to protect an employer’s legitimate business interests. But if you don’t plead the facts to support those legitimate interests, you may find yourself on the wrong side of a motion to dismiss. That was almost, but not quite, the result in Installed Building Products, LLC v. Cottrell, a recent Western District of New York case, where the court found that a plaintiff sufficiently alleged the minimum of facts necessary to advance its non-compete claims against its former employee and his new employer.
Defendants Scott Cottrell and his new employer, American Building Systems, sought dismissal of the non-compete and related claims of Cottrell’s former employer, plaintiff Installed Building Products, because, they argued, (1) the agreement wasn't enforceable because it was not appropriately tailored to protect IBP’s business interests; and (2) even if the agreement was enforceable, IBP failed to plead facts in its complaint sufficient to show that Cottrell actually violated his non-compete agreement. IBP in turn, argued that the agreement was enforceable and that it was forced to plead many of its key allegations on an “information and belief” basis, because, unsurprisingly, it had no idea what Cottrell was up to after it fired him and he joined its direct competitor ABS.
The Court first concluded that the question of whether the non-compete agreement was enforceable required a fact-intensive analysis that was inappropriate for resolution on a motion to dismiss. Next, the Court noted that IBP did plead some fundamental and necessary facts to show a violation of the non-compete agreement: that the employee was bound to a non-compete agreement, that the employee went to the plaintiff’s direct competitor, and that the employee was selling the same products he sold for the plaintiff. These facts supported the Court’s “common sense” conclusion that the competitor hired the employee away with the express purpose of having the employee solicit these customers for the same products – because it was highly unlikely he would be hired to do something unrelated to his former job with the plaintiff. The allegation of these facts – at least at this initial stage of the case – was enough, the Court concluded, to demonstrate that IBP properly pleaded a violation of its legitimate protectable interest – even if IBP based those allegations "upon information and belief."
This case reminds us that non-compete agreements are just contracts and, like every other complaint, require facts supporting each jurisdiction’s unique requirements for enforcement of restrictive covenants. While those factual allegations need not be robust - they must at least achieve the bare minimum to survive a motion to dismiss.