Wednesday, December 14, 2011
In Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C. the Supreme Court of the State of Montana asked the non-musical question: "Can an employer enforce a covenant not to compete when the employer ends the employment relationship?" Wrigg was a shareholder in JCCS, an accounting firm. The covenant at issue stated the following:
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.
In May 2009, JCCS's CEO notifed Wrigg that her contract would not be renewed when it came up in June. the letter reminded Wrigg of the covenant not to compete. Wrigg had difficulty finding work at another accounting firm, but the covenant made it difficult for her to find work. Eventually, she found employment with Rudd and Company (Rudd), but in order to do so she had to accept a significant cut in salary from $154,000 to $87,000 due to Rudd's concerns about the covenant. Wrigg sought a declaration regarding the enforceability of the covenant. The trial court ruled that the covenant was enforceable because it was reasonable as to time and place, was based on good consideration and afforded reaonable protection without imposing an unreasonable burden on the employer, the employee or the public.
The key issue for the Montana Supreme Court, not addressed by the District Court, was whether the covenant protected a legitimate business interest in a case such as this one. Montana generally disfavors covenants not to compete, and the Supreme Court noted that such disfavor is heightened when the employer chooses to end the relationship. Surveying law from other jurisdictions, the Montana Supreme Court ruled that "an employer normally lacks a legitimate business interest in a covenant when it chooses to end the employment relationship." The Court found immaterial the question of whether Ms. Wrigg's departure was triggered by a termination or simply the expiration of her contract. Either way, she did not leave on the terms usually contemplated in such covenants -- she did not voluntarily leave employment so that she could compete against JCCS.