Trial court must take second look at whether noncompete clause enforceable
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Monday, September 12, 2016

Trial court must take second look at whether noncompete clause enforceable

By Dave Strausfeld, J.D. Even though an employment contract did not spell out the amount of compensation, the contract was enforceable, so the trial court erred in holding that the noncompete clause fell with the contract as a whole, held the Montana Supreme Court, reversing the trial court’s summary judgment ruling on this issue. On remand, the trial court would have to conduct a Dobbins balancing test to decide whether the employer, an accounting firm, could enforce the noncompete against a group of accountants who left together to form a competing firm (Junkermier, Clark, Campanella, Stevens, P.C. v. Alborn, Uithoven, Riekenberg, P.C., September 6, 2016, Baker, B.). Employees departed to start their own firm. The accounting firm, which had multiple offices, lost one of its branch offices after all but one of its shareholder accountants decided to open their own firm, taking most of the firm’s clients with them. After their departure, the firm sued them for violating the noncompete clause in their written employment contracts. The employment contracts did not specify compensation but merely stated the accountants would be paid a salary "pursuant to the policies and procedures contained in the [accounting firm’s] Employee Manual." Relying on cases from other jurisdictions holding that the amount of compensation is an essential term in a contract for services, the trial court found the employment contracts unenforceable—meaning the noncompete clauses could not be enforced either. Not simply an "agreement to agree." On appeal, the Montana Supreme Court disagreed that the employment contracts were unenforceable, noting that its past decisions had never held "that the amount of compensation, or a means or mode of calculating compensation, is a mandatory term in an employment contract." In addition, "absolute certainty and completeness in every detail is not a prerequisite" for enforcing a contract, "only reasonable certainty and completeness being required." Here, the parties’ intent in entering into the employment contracts was clear—to create an employment relationship. In addition, the contracts contained sufficient information to make the parties’ obligations "clearly ascertainable." Also relevant was an interdependent stock agreement under which the accountants were issued shares in the business. "We do not have to surmise the mutual obligations in the Employment Agreement," the supreme court explained. Accordingly, the trial court erred in holding that the employment contracts were unenforceable "agreements to agree." The trial court also erred in holding, alternatively, that the agreements were unenforceable adhesion contracts. Balancing test. Because of its erroneous conclusions about the employment contracts as a whole, the trial court never resolved whether the noncompetes were valid under Dobbins, De Guire & Tucker, P.C. v. Rutherford, MacDonald & Olson. Consequently, the supreme court remanded to the trial court to undertake a Dobbins analysis, which would require it to assess factors such as whether the noncompete was limited as to both time and place, based on consideration, and so forth. The high court went on to offer some thoughts about its 2011 decision in Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C., which involved the same accounting firm and the same noncompete clause at issue here. The Wrigg court observed that an employee has "little disincentive" to take "economic advantage of his employer" by, for instance, "appropriating valuable trade information, good will, and customer relationships to compete directly against—and take business from—his former employer." But on the other side of the coin, the accountants here had interests "in being able to continue their profession," and their clients had interests in being able "to maintain the trusted relationships they may have built with their personal accountants." In other words, the trial court would also have to weigh the nature of the accountants’ relationships with their clients. Balancing the various Dobbins factors to determine whether the noncompete clauses were enforceable would require the trial court to undertake "a particularized inquiry into the facts and circumstances" of the case. Fiduciary duty. Finally, the supreme court addressed the accounting firm’s breach-of-fiduciary-duty claims, agreeing with the trial court’s conclusion (in this case after a bench trial) that only one of the accountants—the branch office’s manager at the time of the split—breached a fiduciary duty to the accounting firm.

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