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Thursday, October 4, 2012

Fillpoint, LLC v. Maas: Court Finds Employee's Non-Competition Agreement Unenforceable

In Fillpoint v. Maas (8/24/12) --- Cal.App.4th ---, an employee who held stock in his employer sold that stock to a company purchasing the employer.  He signed a stock purchase agreement, which contained a three-year covenant not to compete. 

He also signed an employment agreement containing a one-year covenant not to compete, which would become operative when employee's employment with the employer ended.  The employee resigned from the employer three years after its acquisition by the purchaser. About six months later, he began working for a competitor. Fillpoint, which had acquired the employer from the purchaser, sued the employee for breaching his employment agreement, and also sued his new employer for interference with contract. The trial court granted the defendants' nonsuit motion, and the Court of Appeal affirmed.

The Court held that the covenant not to compete executed in connection with the sale of the employee's stock was enforceable under Labor Code section 16601.  Slip op. at 7-9.  

It also held that the employment agreement must be read in conjunction with the stock purchase agreement.  Slip op. at 9-14. The Court explained: 
In this case, both the purchase agreement and the employment agreement contained covenants not to compete, but those covenants were not identical.... The two agreements were between the same parties; although the purchase agreement was between Handleman and Maas, and the employment agreement was between Crave and Maas, Crave was owned by Handleman after the acquisition.  Both agreements referenced each other, and the employment agreement contained an integration clause providing that in the event of any conflicts between the terms of the two agreements, the terms of the purchase agreement would prevail.  Based on these facts, we conclude the purchase agreement and the employment agreement must be read together as an integrated agreement. The trial court erred in concluding the purchase agreement and the employment agreement must be read separately.  
Slip op. at 13-14.  

Regardless, the Court concluded that the non-competition agreement contained in the employment agreement was not enforceable.  Slip op. at 14-16.  

The purchase agreement's covenant was focused on protecting the acquired goodwill for a limited period of time.  The employment agreement's covenant targeted an employee's fundamental right to pursue his or her profession. 
Slip op. at 16.  In addition, the Court held that the non-solicitation terms found in the employment agreement were overly broad and were not enforceable.  Ibid.  

The opinion is available here

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