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IDT Corp. v. Kaplan

99-1370 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION—The Court upholds application of a non-competition provision as applied to an employee who went to work for a company that competed with only one aspect of the ex-employer’s business.

Upon commencement of employment, an employee signed a Non-Disclosure and Non-Competition Agreement providing that during employment and thereafter the employee would not: (a) use any confidential information; (b) duplicate or replicate any document or other material embodying any confidential information; or (c) disclose any confidential information. Confidential information was defined as “technical and business information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is learned by Employee in the course of Employment ... including, without limitation, any and all proprietary Inventions,... .” The non-compete clause provided that the employee would not work “as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate, invest in or become employed by any business that is in competition in any manner whatsoever with the business of the company, . , in the United States during Employment and for a period of one year” thereafter. The employer provided domestic and international telecommunications services to consumers and corporations. It had a carrier division that established routes for the long distance services it provided in various countries. If it did not have enough of its own routes to support its long distance customers, it purchased routes from other carriers. Another division was a telephone service that allowed computer users to place calls over the Internet to regular telephones around the world. The employee worked for the company for approximately fifteen months. The employee’s duties were to solicit corporations to supply the employer with international toll free numbers and to research how the employer could become a competitive local exchange carrier. The employee also dealt with individuals and corporations to establish primary international relationships to assist the company in the creation of international phone lines. Lastly, the employee acted as a “buyer” for the company and “was responsible for soliciting potential suppliers and negotiating the rates that would be charged to the company for sending telephone calls to domestic and international locations.” After termination of employment, the ex-employee joined a provider of wholesale international telecommunications that did not provide Internet services or domestic telecommunications services. The new job duties included seeking investment opportunities for the new employer in existing international phone line projects and negotiating rates for telephone calls to various international locations with the new employer’s current suppliers.

The old employer claimed that the new employer was a competing company. It alleged that continued employment of the employee by the new company would result in disclosure of trade secrets and confidential information belonging to it. Consequently, it sought a preliminary injunction barring its ex-employee from working for the new company for a year, for working for any other competing company for a year, and from disclosing any confidential information. At the outset, the Court refused to enjoin the ex-employee from working for any company that competed with the former employer because that relief would be based on speculation. “Injunctions will not be issued merely to allay the fear and apprehensions or to sooth the anxieties of the parties. Nor will an injunction be issued to restrain one from doing what he is not attempting and does not intend to do.” After reviewing the merits, the Court rejected the ex-employee’s argument that the Employment Agreement was not binding because it was never signed by a duly authorized officer of the ex-employer because any written contract, though signed by only one of the parties, binds the other if it accepts it and both act in reliance on it as a valid contract. The Court also rejected the ex-employee’s argument that the new employer did not compete with the old employer within the meaning of the Agreement. Simply because the new employer did not provide “all of the services” the old employer provided did not mean that it was not a competing company. Indeed, the Agreement, by its terms, restricted employment with any company that competes “in any manner whatsoever… .” Next, the Court went on to determine whether the non-compete clause was necessary to protect the legitimate interests of the ex-employer. New Jersey courts have generally limited such covenants to protect only the legitimate interests of an employer to trade secrets and other confidential business information and customer relationships. In this case, the Court was persuaded by the ex-employer that it had a legitimate interest in protecting its confidential business information. This was true even though both parties agreed that the ex-employer’s prices and rates changed almost daily. The ex-employer persuaded the Court that if its past price information for a certain carrier had been disseminated, it could be used by another carrier to negotiate more favorable rates. Further, the Court was persuaded that the ex-employer had a legitimate interest in protecting its customer relationships that the ex-employee formed while working for the company. “Customer relationships that were developed while working for an employer are protected.” In doing so, it rejected the ex-employee’s assertion that the identities of communication companies with whom the ex-employer did business was a matter of common knowledge in the industry. To the Court, this did not mean that the customer relationships were not a legitimate interest worthy of protection. For example, while customer names may be listed in various trade publications or be otherwise generally known, the fact that they are customers of a particular company is not. In addition, the ex-employer was not seeking merely to protect the names of its carrier contacts, but also the ex-employee’s knowledge of their buying habits, the pricing structure for each carrier, payment plans, and other negotiation strategies unique to each carrier.

The ex-employer also argued that the non-compete clause should not be enforced because there was no reliable evidence that any information had been disclosed or used in any way. The Court did not agree. While the ex-employer stated that it did not have concrete evidence that any confidential information had been disclosed, it could be inferred, given the circumstances of the new employment, that it would be inevitable that the ex-employer’s interest would be compromised. Finishing this analysis, the Court found that a time restraint of one year was reasonable and that in the circumstances of the case and because of the nature of the industry the nationwide geographic scope of the restrictive covenant was also reasonable. Companies involved in providing international telephone and Internet access compete regardless of where their business is physically located. Even though an employee’s hardship under a restrictive agreement must be evaluated, this employee was fully aware of the employment agreement and, indeed, testified that the agreement was read before signing. With full knowledge of the agreement, the employee negotiated a position at a competing employer while still working for the ex-employer. In conclusion, the Court found that no undue hardship would result from enforcing the agreement and restricting the ex-employee from working at the new company for the approximately eight months remaining under the agreement. Lastly, the Court found that enforcement of the non-compete clause would not be injurious to the public interest. Based upon the Court’s analysis, the ex-employer’s motion for a preliminary injunction was granted with respect to the ex-employee’s continuing with the new employer.


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