The opinion in Richard Gehrke and Pacific Companies Inc. v Merritt Hawkins and Associates is a rare example of an appellate court not only upholding a trial court’s injunction but also finding that the injunction did not go far enough and significantly extending its geographic reach.
The dispute began when physician recruiting firm Merritt Hawkins and Associates (MWA) moved to enforce its noncompete agreement with Richard Gehrke, a senior salesman and vice president who had joined Pacific Companies and began soliciting former customers. At the trial court, Dallas District Judge Emily Tobolowsky granted an injunction against Gehrke from competing with his former employer but limited the ban to a series of 10-mile radiuses of MHA customers in five states where Gehrke had worked.
On appeal, MHA prevailed by demonstrating that Gehrke was more than just a salesperson and in fact was a vice president who had detailed knowledge of the company’s confidential business plans and trade secrets. The resulting opinion upheld the injunction but also took a rare extra step, finding that the trial court had abused its discretion by limiting the boundaries of the injunction. Where the initial injunction restricted the defendants’ ability to do business within 10-mile radiuses of MHA’s existing clients in five states, the appellate court extended the injunction to cover the entirety of those five states.
The Fifth Court of Appeals opinion indicated that MHA’s need to protect its confidential business plans and trade secrets tipped the balance. Had Gehrke been a lower-level salesperson – rather than an executive – the panel suggested the noncompete would not have been enforceable.
“Covenants not to compete prohibiting solicitation of clients with whom a former salesman had no dealings are unreasonable and unenforceable… However, when an employer seeks to protect its confidential business information in addition to its customer relations, broad non-solicitation restrictions are reasonable… the record demonstrates [Defendant] was much more than a mere salesman–he was an executive and vice president with intimate knowledge of MHA’s confidential business information and trade secrets who also supervised other salesmen.”
With the luxury of 20/20 hindsight, the ruling presents a number of takeaways for executive employment lawyers. Many businesses take a cavalier attitude toward non-competes, thinking they’re difficult to enforce. However, when businesses recruit an executive-level employee from a competitor and indemnify the new hire from potential litigation, the company must go the extra mile to ensure that all concerns at the intersection of non-competes and confidentiality clauses have been thoroughly vetted.