Everybody loves a good story. That is what most lawsuits are after all: just two competing stories presented to a judge or jury. Then, based on the law, the judge or jury decides whose story wins. So, let us tell the story of Modus LLC (“Modus”) v. Encore Legal Solutions Inc. (“Encore”).
Both Modus and Encore were in the business of offering backend litigation support, often called “electronic discovery.” In other words, when people get into lawsuits, there can sometimes be a lot of electronic records (i.e., emails, text messages, social media messages, etc.) that are necessary for the case. Companies like Modus and Encore have the tools to make the process of acquiring and organizing that information much simpler.
Four employees, Curtis, Cean, Michael M., and Michael L., worked for Encore and signed confidentiality, non-solicitation, and non-compete agreements. These employees resigned from Encore then went to work for Modus. Encore took issue with this and asked the court to step in and stop these employees from working for Modus (among other requests to the court) because the employees signed said non-compete agreements. Modus argued to the court that Encore’s non-compete agreement was not enforceable.
The Law
You will remember that, in Arizona, a non-compete agreement must meet certain criteria in order to be enforceable. There must be a reasonable limitation on the type of work the employee can perform, a reasonable geographic limitation, a reasonable time duration, and a legitimate business purpose for the non-compete agreement. (Click here to review what items are required to make a non-compete agreement enforceable in Arizona).
In this case, the non-compete agreement at issue read as follows:
NON-COMPETITION. . . . I agree that for a period of six (6) months immediately following the termination of my employment with the Company for any reason, I will not participate in, provide, promote, associate my name with, supervise, finance or manage (as an employee, consultant, contractor, officer, owner, director, or otherwise) any activities or services on behalf of a Competitor that are the same or similar in function or purpose to those I performed, managed, or promoted for the Company in the two (2) year period preceding the termination of my employment (or such lesser time as I was employed). This restriction will only apply in the Restricted Area. …As used herein, a “Competitor” is any person or entity that provides a product and/or service that would displace or compete with a Company product or service that I was involved in or was provided Confidential Information about in the course of my employment and that the Company continues to provide as part of its business while this contract applies. The “Restricted Area” is the territories where I performed services for the Company. . . .
Now that you know what is required to enforce a non-compete agreement in Arizona and have seen the non-compete agreement here, do you think it is enforceable?
The Judge’s Decision
After reviewing the facts of the case, the Court decided that the non-compete was unenforceable because its restrictions were not limited to protecting Encore’s confidential information and relationships. Specifically, the Court found that the confidentiality and non-solicitation provisions in the employment agreement legitimately protected Encore’s legitimate interest and that the non-compete did not protect any further legitimate business interest of Encore.
If you would like to read more about this case, a full citation is as follows: Modus LLC v. Encore Legal Solutions, Inc., No. CV-12-00699-PHX-JAT (D. Ariz. Dec. 17, 2013) (link).
Important Reminders
It is important to remember that this case had other legal issues relating to the non-solicitation and confidentiality agreements that the court found were valid and pursuable. Encore did pursue those claims. As with most stories, there are multiple story lines within a story. This case is no different.
Contact Counxel Legal Firm
We cannot wait to help you with your non-compete-related questions. Contact a member of Counxel Legal Firm at 480-536-6122 or at intake@wordpress-457010-3165254.cloudwaysapps.com to get started.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact intake@wordpress-457010-3165254.cloudwaysapps.com or 480-536-6122 to request specific information for your situation.
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