BUSI 2001 Week 6 Non-Compete Application Memo Example

Memorandum

To: Owner, Prairie Valley Supply

From: Operations Manager

Date: October 25, 2027

Re: Enforceability of the former sales representative's non-compete

Question Presented

Can Prairie Valley Supply, a composite restaurant-supply distributor in Omaha, enforce the non-compete agreement signed by the sales representative who resigned on October 8, 2027, to stop him from working for a competitor?

Brief Answer

Probably not as written. The agreement protects legitimate interests, but its two-year length, 150-mile radius and ban on any work in food service distribution go well beyond what those interests require, and many courts will not rewrite an overbroad clause. A narrower claim, that he may not solicit the customers he served for the company, has a better chance, and the trade secret claim about the copied spreadsheet does not depend on the non-compete at all.

Facts

The representative worked for the company for six years and handled about 45 restaurant accounts in Omaha and Lincoln. On hiring he signed an agreement not to work "in any capacity for any business engaged in food service distribution within 150 miles of Omaha for two years after employment ends." He resigned and joined a competitor the following week, and has called at least two of his former accounts. A week before resigning, he emailed the company's customer spreadsheet to his personal account.

Discussion

The general common-law rule, followed in most states, enforces an employee non-compete only if it protects a legitimate interest, is no broader than necessary in time, area and activity, does not impose undue hardship on the employee and does not harm the public (American Law Institute, 1981).

Legitimate interest. This element is satisfied. The company has a real interest in the customer relationships the representative built on its behalf over six years and in the pricing and order information he knew. Those are interests courts recognize. The company does not have a legitimate interest in keeping him out of the industry altogether; it cannot protect his general skill as a salesperson.

Time. Two years is long for a sales role in which customer relationships are maintained by regular visits. The company could plausibly argue it needs a year to introduce a new representative to his accounts. Two years probably exceeds what is necessary.

Area. A 150-mile radius around Omaha reaches far beyond the territory he worked, which was Omaha and Lincoln. Courts generally tie a reasonable area to where the employee actually had customer contact. This element likely fails.

Activity. Banning work "in any capacity" in food service distribution would bar him from warehouse, accounting or delivery jobs that pose no threat to the company's customer relationships. This is the clause's weakest point. A restraint limited to selling to the accounts he served would be far easier to defend.

Hardship and public interest. A six-year industry veteran barred from his field across a large region faces a serious hardship relative to the company's need. There is no apparent harm to the public.

How a Court Might Respond to an Overbroad Clause

States differ. Some courts will narrow an overbroad clause to a reasonable scope and enforce it; others refuse to rewrite it and strike it entirely; some states, by statute or decision, allow employers to restrict only solicitation of customers the employee actually served. Mallor et al. (2022) stress that the governing state's law often decides the outcome. If Nebraska law applies and the court will not narrow the clause, the company may be left with nothing under the non-compete.

Facts Still Needed

Three facts would change this analysis, and the company should gather them before acting. First, which state's law the agreement selects; many employment agreements include a choice-of-law clause, and this one should be checked. Second, whether the representative received anything for signing beyond the job itself, such as a bonus or a raise, since some courts look for that kind of consideration when an agreement is signed after employment begins; this one was signed at hiring, which usually suffices. Third, whether the spreadsheet was marked confidential or protected by a password, which matters to the trade secret claim. The office manager can answer the third question from the shared drive's settings this week.

What the Company Should Avoid

The company should not tell customers that the representative is barred from working for a competitor, or repeat the owner's earlier claim that he was fired for stealing. Both statements could expose the company to liability if the non-compete proves unenforceable or the claim proves false.

Recommendation

Do not rely on the non-compete as written. First, pursue the claim for misappropriation of the customer spreadsheet, which stands on its own facts. Second, send the representative and his new employer a letter limited to his obligation not to use the company's confidential information and, if counsel agrees, not to solicit the 45 accounts he served. Third, revise the agreement for future hires to a one-year restriction on soliciting customers the employee served, which is far more likely to be enforced. Bagley (2019) notes that a narrow restraint the company can enforce is worth more than a broad one it cannot. Because the outcome depends on state law, the company should confirm this analysis with an attorney before sending any letter.

References

American Law Institute. (1981). Restatement (second) of contracts.

Bagley, C. E. (2019). Managers and the legal environment: Strategies for business (9th ed.). Cengage Learning.

Mallor, J. P., Barnes, A. J., Bowers, L. T., & Langvardt, A. W. (2022). Business law: The ethical, global, and e-commerce environment (18th ed.). McGraw Hill.