Fruit of the Loom’s Non-Compete Provision

I am always fascinated by covenants not to compete. The facts surrounding them and their analysis are always so interesting. 

A recent decision out of the Western District of Kentucky, Fruit of the Loom, Inc. v. Zumwalt, Civil Action No. 1:15CV-131-JHM, found Fruit of the Loom’s non-competition clause valid and enforceable and prohibited the employee, Zumwalt, from competing against Fruit of the Loom or soliciting any customers for a period of twelve months.

After a bit of a dispute over which state’s law should apply, the court concluded that Zumwalt was violating the terms of his contract with Fruit of the Loom in having gone to work for a competitor (specifically identified in the employment contract) in a capacity that uses knowledge and experience Zumwalt gained at Fruit of the Loom. The court noted that Zumwalt was the only salesperson Fruit of the Loom had had in the Oklahoma and eastern Kansas region and had access to a considerable amount of confidential information, including pricing, sales strategies, and customer lists. The court also found that, under Kentucky law, twelve months was a reasonable period of time for competition to be restricted. The non-compete provision doesn’t appear to have had a specific limitation on geographic area, but it did limit its application, the court said, to nine specific competitors, so that that set out what the geographic scope would be. 

The court also found that there was a likelihood of irreparable harm to Fruit of the Loom. There was evidence that confidential customer lists had already been provided by Zumwalt to the competitor, in violation of the agreement, and the court seems to endorse an inevitable disclosure theory: “[i]t is entirely unreasonable to expect [Zumwalt] to work for a direct competitor in a position similar to that which he held with [Fruit of the Loom], and forego the use of the intimate knowledge of [Fruit of the Loom’s] business operations.”

Zumwalt tried to argue that enforcement of the noncompetition agreement would result in substantial harm to him because he would be deprived of income, but the court stated that Zumwalt signed the agreement knowing that this would be the result, so that his damage “was foreseeable and avoidable.” 

In conclusion, the court issued an injunction prohibiting Zumwalt from working for any of the named competitors or soliciting any of Fruit of the Loom’s customers for a period of twelve months. 

I understand the enormity of the harm from Fruit of the Loom’s perspective, especially given that Zumwalt was its only salesperson in the area, but I also admit to feeling a little bad for Zumwalt here, as this probably leaves him with not very many options for employment for the next year. Cases like this really feel like no-win situations.