A salesman’s solicitation of his former clients, coupled with his previous access to trade secrets, has led to enforcement of a non-compete spanning six states. In FirstEnergy Solutions v. Flerick, the U.S. Court of Appeals for the Sixth Circuit applied a deferential review of the Ohio district court’s opinion enforcing that one-year non-compete. A PDF copy of the opinion can be found below.
Background: Paul Flerick was a salesman for FirstEnergy. While negotiating the terms of his employment with FirstEnergy, Flerick expressed concerns about the proposed noncompete and attempted to negotiate a revision that would allow him to work for a competitor after leaving FirstEnergy as long as he did not directly contact FirstEnergy’s customers. FirstEnergy refused, telling him that it was a “[c]ondition of hire.” Flerick eventually capitulated and signed the agreement.
After receiving a negative review and reassignment, Flerick joined Reliant Energy, a competitor of FirstEnergy. After his resignation, FirstEnergy reminded him about his noncompete clause, and Flerick said that it would not be an issue. When asked about his plans, he declined to provide any information. Flerick was required to and did return all company-issued electronic devices and all company documents.
When FirstEnergy learned that Flerick was working for Reliant, it sent Flerick a cease-and-desist letter. Reliant’s counsel replied and indicated that Flerick did not possess any confidential information, had not solicited any customers to whom he sold electricity in the year before he left FirstEnergy, and that the provision prohibiting Flerick from working for a competitor was overly broad and unenforceable.
After suing Flerick, FirstEnergy learned (and the District Court found) that Flerick had improperly solicited his largest customer from First Energy (Duke Realty) and that he also improperly contacted other FirstEnergy customers in Pennsylvania, New Jersey, Ohio and Maryland through intermediaries.
The U.S. District Court for the Northern District of Ohio enforced the non-compete reasoning that Flerick had breached it by soliciting his former customers and because he still possessed confidential information that he had obtained while employed by First Energy. The court enforced the non-compete for the full year and in the six states in which First Energy did business.
Last week, the Sixth Circuit affirmed that injunction, ruling that under Ohio state law, violation of the non-compete when coupled with the possession of confidential information was enough to warrant enforcement of that non-compete clause, even one over six states. Applying a very deferential review, the Sixth Circuit emphasized repeatedly the improper solicitations of former clients by Flerick as well as the fact that Flerick understood that the non-compete was a condition of employment. The Sixth Circuit reasoned that Flerick was free to operate in five other states in which FirstEnergy did not do business and was not unduly harmed by the injunction.
The Takeaway: First, it appears that Flerick’s counsel tried the IBM v. Visentin defense — i.e., arguing that efforts to safeguard the legitimate protectible interests of FirstEnergy would obviate the need for a non-compete. However, that effort was doomed by subsequent disclosure that Flerick had improperly solicited FirstEnergy’s clients.
Second, this opinion demonstrates the deferential review accorded a trial court in injunctive relief proceedings and the importance of prevailing at the trial court level. The trial court was clearly unhappy about Flerick’s solicitation of his former customers and enforcement of a non-compete throughout six states seems severe. However, the Sixth Circuit refused to disturb the injunction.
Finally, I have to confess I was disappointed with the Sixth Circuit’s further justification for the non-compete because of Flerick’s exposure to trade secrets of First Energy. Extended to its logical conclusion, any non-compete would be fully enforceable on this basis because most employees are inevitably exposed to confidential information of their former employer. Had the Sixth Circuit simply left the need to protect customer relationships as the basis for the non-compete, it would have been more than enough since it was Flerick’s improper pursuit of those customers that drove the injunction.