Court Refuses to Enforce Non-Compete for Lack of Consideration
A judge in the Eastern District of Pennsylvania recently refusedan employer’s request to enforce a non-competition clause against a formeremployee. The court held that theagreement lacked consideration and the restrictions were unreasonablyoverbroad.
Robert Bodell worked as a sales representative for Fres-co,a manufacturer and distributor of “flexible packaging materials.” In 1998, three weeks before he began employmentwith Fres-co, Bodell signed a confidentiality and non-competition agreement. All of Fres-co’s 350 employees signed thesame agreement. In 1999, Fres-co had theemployees sign a slightly revised agreement based on concerns that the 1998agreement was overbroad. So, in 1999, duringhis employment with Fres-co, Bodell signed a new non-compete, promising, amongother things, not to work for any of Fres-co’s competitors for one year aftertermination of his employment.
Inevitably, Bodell left Fres-co and went to work for UltraFlex, a Fres-co competitor. Fres-co soughtinjunctive and declaratory relief against Bodell, allegingbreach of the 1999 confidentiality and non-solicitation agreement. The court denied the request, holding that the1999 agreement was not supported by “new consideration” – under
According to the language of the 1999 Agreement, Bodellsigned it “in consideration of the nullification of a priorconfidentiality and non-competition agreement.” The 1999 Agreementdiffered from the 1998 Agreement in that it (1) reduced the restricted periodfrom two years to one year; (2) introduced and defined the phrase “line ofbusiness;” and (3) eliminated a liquidated damages provision. Fres-co characterizes these lessened restrictions as consideration.
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However, as Fres-cohas conceded, the company had employees sign the 1999 Agreement because it wasconcerned that the 1998 Agreement might be unenforceably overbroad. If the 1998 Agreement is unenforceable, therewere no prior restrictions on Bodell’s post-Fres-coactivity. In that case the 1999Agreement’s non-compete language would not decrease the period of a restriction(as Fres-cocontends), but rather it would increase restrictions on Bodell’s post-Fres-coactivity by creating a new a one-year restriction where none existed before.This hardly constitutes consideration.
Moreover, Fres-coadmits that every employee, however lowly, had to sign the same 1999 Agreementand was not permitted to negotiate any terms. Fres-coargues this was done for consistency across the organization. No doubt thismethod was administratively convenient and achieved consistency, but whethersuch an agreement was permissible under Pennsylvania law is quite a different matter. Lacking consideration since gratuitouslysought, the 1999 Agreement fails to satisfy Pennsylvania’s requirements and is thusunenforceable on this basis alone.
The court further held that, even if Bodell had receivedconsideration for the 1999 agreement, it was unenforceable because (1) the restrictionswere not reasonably necessary for Fres-co’s protection and (2) the restrictionswere not reasonably limited in duration and geographic extent.
Finally, the court refused to exercise its equitable powersto rewrite the contract terms:
Having recognized an overbreadth problem with its 1998Agreement, Fres-co failed properly toaddress it. Now it asks this Court to take on a wholesalerewriting that properly belongs to corporate decision-makers working with theircounsel. We decline this expansive invitation to exercise our equitable powersto help this employer stifle legitimate competition by a salesman merelyseeking to ply his trade.
Fres-co Sys. USA, Inc. v. Bodell (E.D.
[Meredith R. Miller]