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Cost Reduction Solutions v. Durkin Group, LLC

A-0046-07T2 (N.J. Super. App. Div. 2008) (Unpublished)

NON-COMPETITION — Where the relationship between a former employer and its former customer is terminated as a result of the customer’s dissatisfaction, an ex-employee’s non-competition agreement would not have preserved the customer and it is therefore not a breach of a non-competition agreement if the ex-employee takes on the former customer as his or her own.

An accountant left the accounting firm he worked for and started working for a client of the firm. The client had previously hired the firm to provide accounting and auditing services, which at times were performed by the accountant. The client was dissatisfied with the firm’s overall work, but was happy with the accountant’s work. After the accountant left his firm, he contacted the client and was hired to provide the same accounting services as an independent contractor. The firm sued the accountant and the client, alleging that the accountant violated a non-competition agreement and that the client conspired with the accountant to do so. After discovery was completed, the lower court dismissed the firm’s action with prejudice. The lower court found that there was no indication that the client was a party to the non-competition agreement and held that the firm could not enforce the agreement because it was vague, ambiguous, and unclear.

On appeal, the Appellate Division noted that if a term of a contract is ambiguous, then its meaning is to be interpreted in favor of the non-drafting party. It added that for a non-competition agreement or restrictive covenant to be enforceable, it had to protect the employer’s legitimate interests, but it could not cause undue hardship to an employee and could not be injurious to the public. The duration, geographic limits, and scope of prohibited activities also must be considered in the enforcement of a non-competition agreement. The Court pointed out that the non-competition agreement between the accountant and the firm contained no geographic scope or limits on its duration. Additionally, it pointed out that an employer has a right to protect ongoing relationships with its clients but does not have a legitimate interest in preventing competition. Since the relationship between the firm and the client was terminated as a result of the client’s dissatisfaction with the firm, the Court found that the non-competition agreement would not have preserved the customer as the firm’s client. It added that to enforce the non-competition agreement, as argued by the firm, the client would have been denied the right to choose with whom it conducted business. This runs counter to the public interest. As a result of its findings and conclusions, the Court affirmed the lower court’s dismissal of the firm’s suit.

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