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Restrictive Covenant In Employment Agreement Enforced
(February 2010) By Kevin M. Cox, Associate
For more information, contact Paul Farquharson.
Teksystems, Inc. v. Jonathan Bolton,
No. RDB-08-3099 (D. Md., Feb. 4, 2010)
http://www.mdd.uscourts.gov/Opinions/Opinions/TEKSystems0204.pdf
Plaintiff Teksystems, Inc. ("TEK") filed a lawsuit seeking
injunctive relief and damages against its former employee, Defendant Jonathan M.
Bolton ("Mr. Bolton"), for his alleged breach of restrictive covenants contained
in an Employment Agreement between the two. Both parties filed Cross-Motions for
Summary Judgment and the United States District Court for the District of
Maryland granted TEK's Motion for Summary Judgment and denied Mr. Bolton's
Motion for Summary Judgment with respect to the restrictive covenant. Therefore,
Mr. Bolton was enjoined from violating the non-compete provision in the
Employment Agreement for a period of eighteen months from the date of the Order.
Mr. Bolton began working for TEK, a leading technical
staffing and services company, as a Technical Recruiter in May of 1999 in the
New York City region. Mr. Bolton entered into an employment agreement (the
"Agreement") with TEK. The Agreement provides, in pertinent part, that Mr.
Bolton would not engage in the business of TEK for a period of eighteen months
thereafter within a radius of fifty miles of his New York City office. Moreover,
Mr. Bolton was not to disclose or divulge any confidential information or trade
secrets concerning TEK.
During his nine year tenure with TEK, Mr. Bolton was
promoted on several occasions, played a significant role in TEK's staffing
business, and had access to the company's confidential and proprietary
information. Then, on May 5, 2008, Mr. Bolton began working with a new company,
Steven Douglas Associates ("SDA"). Mr. Bolton worked for SDA from his home,
which is located within fifty miles of his prior TEK office. TEK issued Mr.
Bolton a cease and desist letter requesting that he provide written assurances
that he would abide by the terms of his Agreement; however, Mr. Bolton never
provided any response.
The United States District Court for the District of
Maryland held that Mr. Bolton breached the non-compete clause of the Agreement
by engaging in the IT-staffing business in the New City region after his
employment with TEK ended. The Court found that the non-compete clause was
enforceable under Maryland law, as its geographical and temporal locations were
reasonably circumscribed, and traditional fact-specific considerations weigh in
favor of enforcement. Specifically, the Court looked at the scope of the
Agreement, protection of TEK's business interests, the nature of Mr. Bolton's
qualifications and skills, the amount of hardship imposed on Mr. Bolton, and the
public interest.
(i) Scope of Agreement
The Court found that the scope of the Agreement was
reasonably circumscribed because it was facially reasonable under Maryland law.
Moreover, covenants imposing a far broader, or even unlimited, geographical
location have been upheld by courts. Mr. Bolton also claimed that a "restrictive
covenant that prohibits any employee from engaging ‘in any activity which may
affect adversely the interest of the company'" is overbroad. However, Mr.
Boltons' argument was unpersuasive in light of the fact that Maryland courts
have sanctioned restrictive covenants that prohibit former employees from
securing employment with competitors.
(ii) Protection of TEK's Business Interests
The Court found that the covenant not to compete in the
Agreement serves to protect TEK's legitimate business interests. The Court based
its rationale on TEK's type of business (i.e. IT-staffing).
(iii) Mr. Bolton's Unique and Specialized Skills
Courts are more willing to enforce restrictive covenants
when the employee at issue possesses unique and specialized skills. Under
Maryland law, a "unique or specialized skill held by an employee, by virtue of
knowledge, ability or reputation is one that would make it difficult to find a
substitute employee." Mr. Bolton was one of TEK's rising stars and was
instrumental in expanding the company's New York business.
(iv) Hardship to Mr. Bolton
When assessing the validity of a restrictive covenant,
courts also consider the amount of harm facing the employee as a factor weighing
against enforcement. Such covenants are normally upheld unless they are found to
impose undue hardship on the employee. While the covenant could create some
inconveniences for Mr. Bolton, the court did not find that such inconveniences
rose to a level of undue hardship.
(v) Public Interest
Concerning the issue of public interest, it has been
recognized that the public benefits from the enforcement of reasonable
restrictive covenants. Therefore, as long as employers do not restrict employees
from earning a living and do not limit fair competition, they must be given the
opportunity to provide a service to their customers without risking a
substantial loss of business and good will every time an employee decides to
switch employment. Therefore, this factor was decided in TEK's favor as well.
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