Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C. ( 2011 )

November 22 2011
DA 11-0147
IN THE SUPREME COURT OF THE STATE OF MONTANA
2011 MT 290DAWN M. WRIGG, CPA,
Plaintiff and Appellant,
v.
JUNKERMIER, CLARK, CAMPANELLA,
STEVENS, P.C.,
Defendant and Appellee.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. ADV 2009-632
Honorable Dorothy McCarter, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Linda M. Deola, Morrison, Motl & Sherwood, Helena, Montana
For Appellee:
Sara R. Sexe, Marra, Sexe, Evenson & Bell, P.C., Great Falls, Montana
Submitted on Briefs: September 7, 2011
Decided: November 22, 2011
Filed:
__________________________________________
Clerk
Justice Brian Morris delivered the Opinion of the Court.
¶1 Dawn Wrigg (Wrigg) appeals from a declaration of the First Judicial District Court,
Lewis and Clark County, that Junkermier, Clark, Campanella, Stevens, P.C. (JCCS) could
enforce its covenant not to compete against Wrigg. We reverse.
¶2 Wrigg raises a dispositive issue that we rephrase as follows:
¶3 Can an employer enforce a covenant not to compete when the employer ends the
employment relationship?
¶4 Wrigg is a certified public accountant. JCCS is an accounting firm. JCCS hired
Wrigg as a staff accountant to work in JCCS’s Helena office in 1987. JCCS promoted
Wrigg to a JCCS shareholder in November 2003. Wrigg signed her first Shareholder
Agreement (Agreement) in January 2004. The 2004 Agreement expired by its terms. Wrigg
signed a new Agreement in 2005 and again in 2007. The 2007 Agreement expired by its
terms on June 30, 2009.
¶5 All the Agreements included an identical JCCS covenant. The JCCS covenant’s
relevant terms stated:
If this Agreement is terminated for any reason and Shareholder provides
professional services in a business…in competition with JCCS the Shareholder
agrees as follows:
To pay to JCCS an amount equal to one hundred (100%) of the gross fees
billed by JCCS to a particular client over the twelve month period immediately
preceding such termination, if the client was a client of JCCS within the
twelve month period prior to Shareholder’s leaving JCCS’ employment…and
the particular client is thereafter within one year of date of termination served
by Shareholder’s partners, or any professional services organization
employing the Shareholder.
2
¶6 Jerry Lehman, JCCS’s CEO, sent Wrigg a letter in May 2009 in which he informed
Wrigg that JCCS would not renew Wrigg’s Agreement. The Agreement was set to expire on
June 30, 2009. The letter stated that this outcome was best for JCCS and Wrigg “[g]iven the
culture in the Helena office….” The letter also informed Wrigg that JCCS would pay
Wrigg’s salary through June 30, 2009, although Wrigg’s employment would end
immediately. Lehman concluded the letter by reminding Wrigg of the JCCS covenant.
¶7 Wrigg began seeking employment with other accounting firms. These firms
expressed concerns about hiring Wrigg, in part, due to the JCCS covenant. Rudd and
Company (Rudd) eventually hired Wrigg. Wrigg accepted this employment with a
significant pay cut. Wrigg had earned an annual salary of $154,000 while at JCCS. Wrigg
would earn $87,000 at Rudd. Wrigg agreed to the significant pay cut due to Rudd’s concerns
about the JCCS covenant.
¶8 Wrigg concedes that she worked for, and solicited business from, JCCS’s clients
within a year of termination. JCCS sent Wrigg a demand letter that sought compensation
under the terms of the JCCS covenant. Wrigg filed an action for declaratory judgment in
District Court to determine whether JCCS could enforce the covenant. The District Court
applied the Dobbins test to determine that the covenant was reasonable, and therefore, could
be enforced. Wrigg appeals.
STANDARD OF REVIEW
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¶9 We review for correctness a district court’s interpretation of law pertaining to a
declaratory judgment ruling. In re Estate of Marchwick, 2010 MT 129, ¶ 8, 356 Mont.
385, 234 P.3d 879.
DISCUSSION
¶10 Can an employer enforce a covenant not to compete when the employer ends the
employment relationship?
¶11 Montana law strongly disfavors covenants not to compete. Access Organics, Inc. v.
Hernandez, 2008 MT 4, ¶ 17, 341 Mont. 73, 175 P.3d 899; see § 28-2-703, MCA. As a
result, we construe strictly covenants not to compete. Access Organics, ¶ 17. We also read
covenants in a light most favorable to the employee. Dumont v. Tucker, 250 Mont. 417, 421,
822 P.2d 96, 98 (1991). We void covenants that act as a full restraint on trade and in absence
of an express statutory exception. Mungas v. Great Falls Clinic, LLP, 2009 MT 426, ¶¶ 39-
40, 354 Mont. 50, 221 P.3d 1230 (citing Dobbins, De Guire & Tucker, P.C. v. Rutherford,
MacDonald & Olson, 218 Mont. 392, 396, 708 P.2d 577, 579 (1985)); § 28-2-703, MCA.
¶12 Wrigg agrees that the JCCS covenant imposes a partial restraint on trade. We review
for reasonableness covenants that impose a partial restraint on trade. Mont. Mt. Prods. v.
Curl, 2005 MT 102, ¶¶ 11-15, 327 Mont. 7, 112 P.3d 979 (citing Dobbins, 218 Mont. at 397,
708 P.2d at 580). A covenant that restrains trade only partially must meet the following
three elements in order to be considered reasonable:
(1) The covenant should be limited in operation either as to time or place;
(2) the covenant should be based on some good consideration; and
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(3) the covenant should afford reasonable protection for and not impose an
unreasonable burden upon the employer, the employee, or the public.
Mungas, ¶ 39 (citing Dobbins, 218 Mont. at 397, 708 P.2d at 580).
¶13 The District Court determined that the JCCS covenant satisfied all three elements.
JCCS covenant is limited in time—one year—and place—Lewis and Clark County and its
contiguous counties. The District Court also found that consideration accompanied the
JCCS covenant. Wrigg had accepted the JCCS covenant each time that she signed a new
employment contract. The District Court further determined that the JCCS covenant
satisfied the third element as it did not entirely prevent Wrigg from practicing her profession.
The District Court did not address whether the employer’s termination of the employment
relationship affected a covenant’s enforcement.
¶14 Wrigg primarily disputes the District Court’s failure to consider whether JCCS can
claim a business interest in the JCCS covenant. Wrigg argues that JCCS must assert a
legitimate business interest in order to enforce the JCCS covenant. Wrigg suggests that the
District Court should have concluded that any employer—including JCCS—lacks a
legitimate business interest in a covenant when it terminates the employment relationship
without cause.
¶15 JCCS provides no case law where a court has enforced a covenant when the employer
has ended the employment relationship. JCCS also offers no policy argument to offset
Montana’s public policy against restrictive covenants, especially when an employer
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terminates the employment relationship. JCCS primarily contends instead that our case law
binds us to rule in its favor.
¶16 JCCS relies heavily on Dobbins to argue the reasonableness of the JCCS covenant.
Dobbins, 218 Mont. at 397, 708 P.2d at 580. JCCS correctly notes that the language in the
Dobbins covenant mirrors the language in the JCCS covenant. Dobbins, 218 Mont. at 394,
708 P.2d at 578. JCCS asserts that its use of the language deemed reasonable in Dobbins
means that the JCCS covenant is per se reasonable. JCCS misinterprets Dobbins.
¶17 The accountant in Dobbins left his accounting firm with whom he had signed a
covenant not to compete. Dobbins, 218 Mont. at 394, 708 P.2d at 578. The firm sought to
enforce the covenant upon the accountant’s departure. The district court deemed the
covenant unenforceable as a matter of law. Dobbins, 218 Mont. at 394, 708 P.2d at 578.
This Court reversed. The Court characterized the covenant as only a partial restraint on trade
that could be enforced if its terms were reasonable. Dobbins, 218 Mont. at 396, 708 P.2d at
580. The Court remanded to allow the trial court to make factual findings as to the
covenant’s reasonableness. Dobbins, 218 Mont. at 397, 708 P.2d at 580.
¶18 The Court relied largely on the formulation developed in 13 A.L.R. Fourth 661 to
guide the district court on remand. The Court sought to balance “the competing interests” of
the public as well as the employer and the employee. Dobbins, 218 Mont. at 397, 708 P.2d
at 580. Dobbins accordingly did not determine that enforcement of a covenant that uses the
same language as the JCCS covenant would be reasonable as a matter of law. Dobbins
simply held that covenants, like the JCCS covenant, should be subject to a reasonableness
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analysis under appropriate circumstances. These circumstances require that legitimate
business reasons exist to justify the covenant.
¶19 This requirement acknowledges the long standing principle that a covenant that serves
no legitimate business interest necessarily is oppressive and invalid. Richard A. Lord,
Williston on Contracts Vol. 6, § 30:4, 164-75 (4th ed., West 2009). This commentator
recognized that a covenant “must be ancillary to a legitimate business undertaking” to be
enforced in most jurisdictions based on deep, historical roots of this requirement in English
and American common law. Lord, § 30:4 at 164-75. Section 188(1)(a) of the Restatement
(Second) of Contracts, (1981), similarly proposes that a covenant may not be enforced if the
“restraint is greater than is needed to protect the [employer’s] legitimate interest.” The
obvious implication is that a covenant without a legitimate interest is unenforceable as it
necessarily imposes a greater restraint than is needed.
¶20 Courts in most jurisdictions have agreed. For example, the New Hampshire Supreme
Court analyzes a covenant’s enforceability by addressing the reasonableness of a given
restraint. The court assesses reasonableness, in turn, by trying “to identify the legitimate
interest of the employer.” Syncom Indus., Inc. v. Wood, 920 A.2d 1178, 1185 (N.H. 2007).
Similarly, the Idaho Supreme Court agrees that “[t]he first issue the Court must consider is
whether [the employer] has a legitimate interest worthy of protection” in assessing a
covenant’s enforceability. Freiburger v. J-U-B Engrs., Inc., 111 P.3d 100, 105 (Idaho 2005).
¶21 Courts will not enforce covenants if an employer lacks a legitimate business interest.
The Second Circuit declined to address a covenant’s reasonableness when it determined that
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the employer lacked a legitimate interest in its covenant. Amer. Inst. of Chem. Engrs. v.
Reber-Friel Co., 682 F.2d 382, 387 (2d Cir. 1982). An employer lacked a legitimate interest
in preventing competition from a former employee when the employer’s customer list readily
was attainable from other sources. Amer. Inst. of Chem. Engrs., 682 F.2d at 387. The
Pennsylvania Supreme Court similarly declined to enforce a covenant when it determined
than an employer lacked a “protectable business interest.” Hess v. Gebhard & Co., 808 A.2d
912, 922 (Pa. 2002). The employer could not claim good will as a legitimate interest when
the employer had valued the business’s good will at $0 in an earlier contract to purchase the
business. Hess, 808 A.2d at 922.
¶22 We previously have not addressed directly whether an employer must establish a
legitimate business interest in order to enforce a covenant. The Dobbins test itself does not
explicitly require that an employer possess a legitimate interest in the covenant. The Court
in Dobbins cited the ALR’s requirement, however, that a covenant’s restrictions reasonably
be related to a “legitimate business interest.” Dobbins, 218 Mont. at 397, 708 P.2d at 580.
Dobbins’s emphasis on an employer’s legitimate business interest leads us to conclude that
the requirement that an employer establish a legitimate interest in a covenant before we
review it for reasonableness remains implicit in the Dobbins analysis. We adopt expressly
the requirement that an employer must establish a legitimate business interest as a threshold
step to our analysis of the reasonableness of a covenant. This approach comports with the
disfavor of covenants not to compete expressed in Montana law. Access Organics, ¶ 17;
§ 27-2-703, MCA.
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¶23 The District Court did not address whether the JCCS covenant served a legitimate
business interest. Our previous case law has not defined the nature of the business interest
that a covenant serves. We look instead to other jurisdictions that have analyzed the nature
of a legitimate business interest.
¶24 The Restatement defines a legitimate business interest as an interest that must
necessarily be enforced to protect the basis of the employer’s bargain. Restatement (Second)
of Contracts at § 188, cmt. b. An employer possesses a legitimate interest to protect itself
from an employee appropriating valuable trade information, good will, and customer
relationships to compete directly against—and take business from—his former employer.
Guardian Fiberglass, Inc. v. Whit Davis Lumber Co., 509 F.3d 512, 516 (8th Cir. 2007).
These legitimate interests necessitate court protection when an employer retains inadequate
remedies—absent a covenant—to prevent an employee from appropriating this valuable
information to compete against his former employer. See A.E.P. Indus., Inc. v. McClure, 302
S.E.2d 754, 763-64 (N.C. 1983).
¶25 An employee, correspondingly, has little disincentive to enrich himself by taking
economic advantage of his employer. A covenant may be necessary, therefore, to prevent an
employee from exploiting his employment to later compete and capture the employer’s
market. Rao v. Rao, 718 F.2d 219, 224 (7th Cir. 1983). This risk can make the covenant
necessary as the employer may not get the full value of the employment contract if it cannot
confidently give the employee access to confidential information and client relationships
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needed for the most efficient performance of his job. Restatement (Second) of Contracts at
§ 188, cmt. b.
¶26 Courts often enforce a covenant when it protects against an employee using customer
relationships and information acquired during the employment relationship to compete
directly against his former employer. United Labs, Inc. v. Kuykendall, 370 S.E.2d 375, 381-
82 (N.C. 1988). The employee in United Labs, Inc. worked as a sales representative for a
chemical company. The sales representative resigned his position with the company to work
for the company’s competitor. United Labs, Inc., 370 S.E.2d at 378. The sales
representative contacted customers whom he had serviced while employed with the chemical
company to generate new business. United Labs, Inc., 370 S.E.2d at 378.
¶27 The North Carolina Supreme Court recognized that “protection of customer
relationships and goodwill against misappropriation by departing employees” serves as a
legitimate protectable interest of the employer. United Labs, Inc., 370 S.E.2d at 381. Good
will and customer relationships need protection when the customer primarily communicates
with the employer through the employee. United Labs, Inc., 370 S.E.2d at 381. The Court
determined that the sales representative had gained extensive personal relationships with the
company’s customers and intimate knowledge of these customers’ buying needs. United
Labs, Inc., 370 S.E.2d at 382.
¶28 In contrast, courts seem less likely to determine that a legitimate business interest
exists when an employer needs no covenant to protect customer relationships or valuable
trade information. Boisen v. Peterson Flying Serv., Inc., 383 N.W.2d 29, 33-35 (Neb.
10
1986). The employee in Boisen worked as a pilot for an aviation services company. Boisen,
383 N.W.2d at 31. The company discharged the pilot after four years. Boisen, 383 N.W.2d
at 32. The pilot sought to establish his own aviation services business after his discharge.
The Nebraska Supreme Court declined to enforce the covenant. Boisen, 383 N.W.2d at 33-
35. The court accepted that an employer’s legitimate interest in a covenant prevents an
employee from using information or relationships with customers acquired during the scope
of the employment relationship to compete with the employer. Boisen, 383 N.W.2d at 33-
35. The court refused to enforce the covenant, however, where the pilot had gained no
valuable trade secrets and had not interacted with any of the company’s customers during his
employment. Boisen, 383 N.W.2d at 34-35.
¶29 These cases demonstrate that a legitimate business interest in a covenant requiresthat
a restriction on post-employment activities be necessary to protect an employer’s good will,
customer relationships, or trade information. See Guardian Fiberglass, Inc., 509 F.3d at
516; Boisen, 383 N.W.2d at 34-35; Restatement (Second) of Contracts at § 188, cmt. b. This
limitation ensures that businesses will use a covenant only when less restrictive measures
will not suffice. Wrigg arguably interacted with JCCS’s clients during her employment.
JCCS never alleges that Wrigg acquired any JCCS trade secrets or intimate knowledge
regarding any special accounting needs of JCCS’s clients. We turn then to address whether
JCCS can assert a legitimate business interest to enforce the covenant when it terminated
Wrigg.
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¶30 We begin with the premise that Montana law generally disfavors covenants not to
compete. Access Organics, Inc., ¶ 17; see § 28-2-703, MCA. This disfavor only heightens
when an employer chooses to end the employment relationship and yet seeks to enforce the
covenant not to compete. See Morris v. Schroder Capital Mgmt. Intl., 859 N.E.2d 503, 506-
07 (N.Y. 2006); see also C. Monitoring Serv., Inc. v. Zakinski, 553 N.W.2d 513, 520 (S.D.
1996). A covenant strips an employee of his livelihood. See Mont. Mt. Prods., ¶ 17. Courts
disfavor this harsh result. As discussed, however, courts will tolerate this restriction on an
employee’s livelihood under appropriate circumstances when the employee initiates the
termination. See Morris, 859 N.E.2d at 506-07.
¶31 As noted by the New York court in Morris, an employee who contemplates
terminating his employment faces a choice. The employee may choose to preserve his
livelihood under an employment contract by remaining with the employer and not
competing. On the other hand, the employee may elect to risk losing his livelihood by
leaving his employment voluntarily to engage in competition with his former employer.
Morris, 859 N.E.2d at 506. The employee makes an informed decision under these
circumstances about the risks associated with a covenant’s enforcement and voluntarily
chooses to encounter those risks. Morris, 859 N.E.2d at 506.
¶32 No informed decision exists, however, when an employee departs involuntarily.
Morris, 859 N.E.2d at 507. Enforcement of the covenant could impoverish an employee
who has done nothing to warrant his termination. Courts have noted that termination creates
inequitable circumstances for an employee. The Iowa Supreme Court declined to enjoin a
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salesman whom the employer had terminated due to a recession. Ma & Pa, Inc. v. Kelly, 342
N.W.2d 500, 503 (Iowa 1984). The equities balanced heavily in the salesman’s favor as not
allowing him to practice his trade would have a profound economic hardship on the
employee and his family. Ma & Pa, Inc., 342 N.W.2d at 503. The New York Court of
Appeals similarly declined to enforce a covenant when the employer terminated the
employee without cause. Post v. Merrill Lynch, Pierce, Feener, & Smith, 397 N.E.2d 358,
360-61 (N.Y. 1979). Enforcement would allow an employer “to economically cripple a
former employee and simultaneously deny other potential employers his services” when the
employer, without reason, creates the employee’s need to compete. Post, 397 N.E.2d at 360-
61.
¶33 Courts accordingly have determined that the circumstances surrounding the
employee’s departure should be considered before enforcing the covenant. The Tennessee
Supreme Court stated that an employer terminating an employee without cause “clearly has a
bearing on whether a court…should enforce a non-competition covenant.” C. Adjustment
Bureau, Inc. v. Ingram, 678 S.W.2d 28, 35 (Tenn. 1984). The South Dakota Supreme Court
similarly determined that a stricter standard to enforce covenants applied when the employee
had been terminated without cause. C. Monitoring Serv., Inc., 553 N.W.2d at 520. The
court cited the consensus among various jurisdictions that courts should scrutinize highly a
covenant’s enforcement given the involuntary nature of the departure. C. Monitoring Serv.,
Inc., 553 N.W.2d at 520-21.
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¶34 Courts have provided—in accordance with this heightened disfavor—various
rationales for why an employer may lack a legitimate business interest when it terminates the
employment relationship. For example, the Seventh Circuit determined that a covenant’s
enforcement proved unnecessary to protect the employer. Rao, 718 F.2d at 224. A doctor
and a medical practice had entered into a two year employment agreement. Rao, 718 F.2d at
221. The agreement included a covenant. The practice informed the doctor that it would not
renew the contract after the two year term expired. The practice provided no reason for the
non-renewal. Rao, 718 F.2d at 221.
¶35 The Seventh Circuit analyzed the covenant’s enforceability, under Illinois law, by
addressing whether the employer had a legitimate business interest in the covenant. Rao,
718 F.2d at 223. The court acknowledged that a covenant serves a legitimate business
interest when it prevents an employee from appropriating trade secrets and customer
relationships to compete against the employer. Rao, 718 F.2d at 224. The court determined
that this legitimate interest did not warrant protection, however, when the employer
terminates the employment relationship. The practice could have prevented the doctor’s
competition simply by maintaining the employment relationship. Rao, 718 F.2d at 224.
¶36 A Pennsylvania court similarly determined that an employer could not claim a
legitimate business interest when it terminated an employee without cause. Insulation Corp.
of Amer. v. Brobston, 667 A.2d 729, 735 (Pa. Super. 1994). An employer’s decision to end
the employment relationship reveals the employer’s belief that the employee is incapable of
generating profits for the employer. Insulation Corp., 667 A.2d at 735. It would be
14
disingenuous for an employer to claim an employee was worthless to the business and
simultaneously claim that the employee constituted an existential competitive threat.
Insulation Corp., 667 A.2d at 736. The employer could not claim that it was in need of
protection, and, therefore, could not demonstrate a legitimate business interest in the
covenant.
¶37 We agree that an employer normally lacks a legitimate business interest in a covenant
when it chooses to end the employment relationship. Maintenance of the employment
relationship represents an employer's best method to prevent competition from an employee.
Rao, 718 F.2d at 224. An employer needs no covenant to protect its business in these
circumstances as the employer sits in the best position to protect itself simply by maintaining
the employment relationship. Rao, 718 F.2d at 224. An employer also cannot claim that it
needs protection from employee competition when the employer has stated implicitly that the
employee is incapable of generating profits. Insulation Corp., 667 A.2d at 736. A covenant
serves only to prevent competition when an employer chooses to end the employment
relationship. Rao, 718 F.2d at 224. We do not consider this interest legitimate. An
employer assumes the risk of competition from a former employee when it chooses to end
the employment relationship.
¶38 We recognize that circumstances may exist in which the employer chooses to end the
employment relationship due to conduct of the employee that has proven detrimental to the
employer or the employer’s clients. This employee conduct, or misconduct, could provide
the employer with a legitimate business reason to seek to enforce the covenant. The
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employer under those circumstances would have to establish the legitimacy of the business
interest and the nature of the risk posed by the former employee’s competition. See, e.g.,
Whitmyer Bros., Inc. v. Doyle, 274 A.2d 577, 583 (N.J. 1971) (refusing to enforce a covenant
where the employer had failed to make an adequate evidentiary showing that it needed to
enforce the covenant to protect against the employee using trade secrets to compete with the
company).
¶39 JCCS argues that the reason for the employee’s departure should be immaterial to a
covenant’s enforceability. JCCS correctly notes that many of our decisions regarding
covenants have not specified the circumstances under which the employee departed. See,
e.g., Mont. Mt. Prods., ¶ 6. JCCS interprets this lack of specificity as an implicit holding that
which party terminates the employment relationship as being irrelevant to the enforceability
of covenants. We cannot agree.
¶40 The Court’s cases address the issues presented by the parties. Employers primarily
raised the issue of a district court’s failure to analyze a covenant’s reasonableness. Mungas,
¶¶ 16, 40; Mont. Mt. Prods., ¶¶ 11-17; Dobbins, 218 Mont. at 397, 708 P.2d at 580. Other
cases have focused on whether adequate consideration accompanied the covenant. Access
Organics, Inc., ¶ 18. The remaining cases involved overly broad covenants under the
Dobbins test. Daniels v. Thomas, Dean & Hoskins, Inc., 246 Mont. 125, 144-45, 804 P.2d
359, 370-71; St. Med. Oxygen & Supply v. Amer. Med. Oxygen Co., 240 Mont. 70, 74-75,
782 P.2d 359, 370-71 (1989). The Court’s lack of specificity regarding the manner by which
these previous parties had ended the employment relationship simply means that the parties
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have not placed before the Court the issue of a covenant’s enforcement when the employer
chooses to end the employment relationship.
¶41 JCCS finally argues that it never terminated Wrigg. The Agreement with Wrigg had
expired. JCCS paid Wrigg through the date that the Agreement expired on June 30, 2009.
JCCS contends that it fully performed its contractual obligations under the Agreement and
waived performance of Wrigg’s obligations. JCCS suggests that a distinction exists between
ending employment without cause and deciding not to renew an agreement. JCCS concedes
that it must have cause to terminate a contractual relationship, but argues that it faces no
legal obligation to renew an expired contract.
¶42 Whether JCCS terminated the Agreement, or it expired under its own terms, proves
immaterial to our analysis. JCCS undoubtedly had the right not to renew its Agreement with
Wrigg. We face the issue, however, of whether JCCS can assert a legitimate business
interest to justify enforcement of its covenant when JCCS chose to end the employment
relationship. Our analysis concerning an employer’s legitimate interest in the enforceability
of covenants applies to both a terminated contract and an expired contract. See Rao, 718
F.2d at 221-24.
¶43 A covenant may serve a legitimate business interest when an employee voluntarily
leaves his employment to compete against, and take business from, his former employer.
Rao, 718 F.2d at 224. A court should analyze whether the former employee used trade
secrets, customer relationships, or proprietary information that would provide an employee
with an unfair advantage. Boisen, 383 N.W.2d at 34. An employer would have difficulty
17
asserting this same legitimate business interest, however, when the employer initiates the
termination. Rao, 718 F.2d at 224.
¶44 JCCS clearly ended the employment relationship here as evidenced by its May 2009
letter to Wrigg. The letter informs Wrigg that JCCS would not renew the Agreement that
was set to expire on June 30, 2009. The letter describes no refusal or failure by Wrigg to
comply with JCCS policies or standards. The letter also describes no facts that would give
rise to misconduct or allege that Wrigg had failed to perform diligently her employment
duties. JCCS elected to terminate its employment relationship with Wrigg, and, accordingly,
cannot enforce its covenant under these circumstances. Rao, 718 F.2d at 224. We reverse
and remand with instructions to the District Court to vacate its declaration that JCCS can
enforce its covenant and enter judgment in Wrigg’s favor.
/S/ BRIAN MORRIS
We Concur:
/S/ MIKE McGRATH
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ BETH BAKER
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