Opinion
No. CV 05 400 82 78
July 5, 2005
MEMORANDUM OF DECISION
On March 9, 2005, the Plaintiff Edge Technology Services, Inc. (Edge) filed a four-count complaint against the Defendants, Karen E. Worley (Worley) and The Systems Group, (Systems). In Count One, the plaintiff alleges a Breach of Contract action as to the defendant Worley. The second count alleges tortious interference with Contractual and Business Relations as to the defendant Systems. Counts three and four are filed against all defendants and allege a civil conspiracy and a violation of Connecticut Unfair Trade Practices Act, respectively.
In addition to the filing of the complaint, the Plaintiff filed an application for Ex-Parte Temporary Restraining Order, Temporary Injunction and Order to Show Cause. The plaintiffs seek an order from the court prohibiting and restraining the defendants from utilizing or disclosing any confidential or proprietary information of the plaintiff's clients that was acquired by Worley during the course of her employment at Edge.
In addition, the plaintiffs seek an order from the court prohibiting Worley from performing or seeking to perform any services performed by Worley while an employee of Edge, including the placement of Information Technology personnel, for any client of Edge for whom Worley performed such services at any time during the one-year period immediately prior to Worley's voluntary termination of employment from Edge on January 3, 2005.
Lastly, the plaintiffs seek an order prohibiting Worley from offering employment to or employing directly or indirectly any employee, consultant, subcontractor or other agent of Edge who was employed by Edge during the one-year period immediately prior to Worley's termination of employment from Edge on January 3, 2005.
The plaintiffs also seek an order prohibiting and restraining Systems from directing or in any way inducing any of the foregoing conduct.
On March 10, 2005, the court (Pittman, J.) denied the application for an ex-parte restraining order and instead set the matter down for a show cause hearing on April 4, 2005. The parties were advised that the "court would not hear evidence on that date but will conduct a status/settlement conference and assign the matter for an evidentiary hearing, if necessary."
On April 26 and April 27, 2005, the court (Lopez, J.) held an evidentiary hearing on the application for a temporary injunction. The parties were given until May 18, 2005 to file post-trial briefs and until June 10, 2005 to file reply briefs. The court has received briefs from all of the parties.
I. FACTS A. The Plaintiff, Edge Technology Services, Inc.
Edge is an information technology (IT) consulting firm that supplies "the Fortune 100 companies in Connecticut with IT help and solutions to their technology needs." This service is provided by the placement of IT personnel for short and long-term project assignments in technical positions at the clients' businesses. Ralph Durante is the president and CEO of Edge. He has been in the IT business for thirty-one years. He established Edge in 2000. The company currently employs approximately one hundred and fifty individuals.
4/26/05 Tr. at 85.
Although, according to Durante, "there are over three hundred clients in the state of Connecticut that have a good size IT Department," Edge focuses its efforts on the top ten businesses in the State. These include the Hartford Insurance, Cigna, Aetna, ESPN, and Northeast Utilities. Once one of these corporations determines that it needs IT personnel, it hires a company, referred to as a vendor, to service these needs. Both the plaintiff and the defendant, Systems, are experienced vendors of these types of services. In addition, both Edge and Systems are within a special class of vendors identified by The Hartford Insurance as preferred/Tier I. Vendors.
Id.
Id.
The process used by corporations to meet their IT needs begins with the issuance of a notice to vendors describing the positions that must be filled as well as the skills and requirements which must be possessed by the person interested in the position. Vendors then submit the names and resumes of their candidates to the corporation for consideration. The corporation then makes a decision selecting an individual from among the candidates presented by the vendors. The factors that go into the decision-making about which candidate to select are "qualifications and price, primarily."
Id. at 42.
The business of placing consultants in Fortune 100 companies to address their IT needs is one that relies heavily on relationships. Durante testified that he considers having relationships with executives, managers and other employees of a Fortune 100 company a significant asset to his business. Building and maintaining relationships is so important to the IT consulting business, that each year a significant amount of money is spent on entertaining Fortune 100 company executives, managers and other employees for "lunch, dinner, drinks, coffee."
Id. at 131.
The testimony in this case regarding cultivating relationships underscores the meaning of the frequently used saying, "it is not what you know, but who you know." Kate Cervoni, Edge's current Vice President and Branch Manager, testified that building professional relationships with the clients in the industry is "extremely important. That's why we have expense accounts and those things. It is about relationships and in any sales it's you don't say no to people you like so it's extremely important to build those relationships."
Id. at 148.
Ms. Cervoni's candid description of the ways that relationships are built in this business offers a glimpse of the extent to which a business will go to cultivate relationships "You — you get to know them. You be their friend during, you know, the nine to five week or later because we do dinners and golf with dinners and things like that. You get to know, you know, how old are your kids, I have kids, truthfully whether you like them or not you appear to be friends with all your clients."
Id. at 149.
When Durante commenced building his IT consulting business, one of the first activities that he engaged in, was establishing his management team as well as setting up his sales force. In an effort to successfully complete this process, and keeping the importance of relationships in mind, he asked his secretary who had worked with Worley at Howard Systems to call her and ask her if she would meet with him. Worley agreed to the meeting. Durante asked Worley to "head up sales . . . to run sales, to run the company, help me out."
Id. at 86.
Worley accepted the position as the branch manager of the "Hartford office which she did in Farmington, Connecticut and she handled all the sales, hired the recruiters, hired the ad man, whatever it took to grow the Hartford marketplace." At the time of accepting the position, Durante presented Worley with a letter he had prepared outlining the terms of her employment with Edge. The letter enclosed a document entitled Professional Practices Agreement. This agreement, which is an employment contract with a non-compete clause, consists of six paragraphs. Worley and Durante executed the letter and the agreement on June 27, 2001.
Id.
Plaintiff's Exhibit 1.
Plaintiff's Exhibit 2. The agreement states in relevant parts as follows:
1. Any confidential or proprietary information of Edge Technology Services, or its subsidiaries or of any client of Edge which is acquired by me in the course of my employment, will not be used by me except in performance of my employment duties and will not be disclosed to any unauthorized person either during or after the course of my employment by Edge.
4. While employed by Edge and for a period of one-year subsequent to any termination, voluntary or involuntary, of my employment with Edge, I will not be employed by, act as a consultant to, or otherwise perform such services for remuneration, directly or indirectly for any client of Edge (including, for this purpose, any subsidiary or other affiliate of such client), for whom I was performing services at any time during the one-year period immediately prior to any such termination.
5. While employed by Edge and for a period of two years after termination (voluntary or involuntary) of my employment with Edge, I will not offer employment to or employ directly or indirectly (as employees, contractors consultants, etc.) any employee, consultant, subcontractor, or other agent of Edge who was employed by Edge during the one-year period immediately prior to any such termination.
Edge employed Worley until December 20, 2004 when she presented Durante with a letter providing him with two weeks notice of her intention to resign from her position. Durante testified that when Worley told him of her intentions to leave, he reminded her that he expected her "to do the right thing," which meant that he expected her to honor the covenant not to compete. Edge maintains that a covenant not to compete is routine and customary in the IT consulting business and he had every expectation that Worley would honor her agreement with Edge.
B. The Defendant, Karen Worley
Karen Worley has been engaged in the business of placing IT personnel for a at least twenty years. She has been employed on a full-time basis in this business since she graduated college in 1984. In 1989, she joined a company known as Howard Systems as a sales representative. She left Howard and accepted the position with Edge on June 27, 2001.
4/27/05 Tr. at 25.
According to the terms of her employment, Worley was to be paid a base salary of one hundred thousand dollars ($100,000.00) a year. In addition she was to be paid a quarterly bonus of twenty thousand dollars ($20,000.00) based on an agreed-upon Management by Objectives (MBO) plan. The agreement also provided an opportunity for Worley to gain an equity position in the company upon meeting the MBO requirements. In addition, Worley was to receive an expense account of thirty thousand dollars a year ($30,000.00), a monthly car allowance of three hundred twenty dollars ($320.00) as well as cell phone reimbursement.
Plaintiff's Exhibit 1.
4/26/05 Tr. at 93.
In consideration for this salary, Worley was to provide a number of services to Edge. First, Worley's services included the marketing and sales of IT services to Edge's clients. She testified that among her duties at Edge, she "called on clients to place consultants at the client sites." As a sales person, Worley testified that she "looked for opportunities to place consultants and placed consultants." Worley did not provide any IT consulting services to any of Edge's clients, she concentrated her efforts on placing the consultants.
4/26/05 Tr. at 18.
Id. at 22, 23.
In addition to these duties, Worley was responsible for supervising the recruiters of IT personnel; that is, those individuals, who were employees of Edge and who were responsible for the solicitation and placement of IT personnel at Edge's clients. As Edge grew and added staff, Worley's duties at Edge changed. Other employees were added that relieved Worley of some of her responsibilities.
Id. at 48.
At the time that Durante offered Worley employment with his company, Worley was also subject to a non-compete agreement with Howard. Although this was considered by Durante as a restriction on her ability to obtain business for Edge, "she worked on other accounts. There were plenty of other places to go and that was my approach on it." According to Worley, since she already had experienced being subject to a non-compete agreement at Howard, she did not want to subject herself to that type of restriction again.
Id. at 14.
Id. at 87.
Worley testified that she discussed her concerns with Durante prior to signing the agreement. She testified that she considered that the agreement." would be overly restrictive of client relationships that I had for thirteen plus years. Going forward I didn't think that it was a reasonable prohibition. What I would think would be reasonable is any clients, ESPN for example, or UI or I knew that would be introduced to me while I was there but certainly not clients that I was bringing with me that I had long term relationships with and it was my understanding that Ralph and I agreed that . . . that was an understanding." According to Worley, Durante told her that she didn't need to worry about the relationships that she was bringing to the table because those relationships would not be subject to the prohibition.
Id. at 53.
The evidence demonstrates that during her time at Edge, Worley worked very hard at building and sustaining her relationships with Edge's clients. There came a time, however, when she decided that she wanted to leave Edge and move on in her career. When she was offered a position with the Defendant, Systems Group, Inc., a competitor of Edge, she accepted the position. On December 20, 2004, she met with Durante to personally deliver a letter of resignation. In the letter, she advised Durante that her resignation was effective immediately and that the letter was to be considered as two weeks notice. Her last official day at Edge was to be January 3, 2005.
Plaintiff's Exhibit 4.
During the two weeks prior to her departure from Edge, Worley did not report into the office. It is her position that she was not asked to come into the office during those two weeks. She testified that she provided a transition memo to the office. She also submitted receipts for entertaining Edge's clients during the holidays. According to testimony, the receipts did not detail the nature of the business that was conducted, nor did Worley include anyone from Edge staff to join her in the business entertainment.
Worley began to work for Systems the same week that her resignation became final at Edge. Her duties at Systems are essentially the same as those that she engaged in at Edge. Those include seeking to make placements of IT personnel at companies such as The Hartford and other clients of Edge. The evidence demonstrates that she has already made efforts to place individuals at the Hartford and at Cigna. She has in addition, made personal visits to the physical plants.
When Durante learned of this activity, he telephoned Worley to discuss the situation. She told him that she had been directed by Mr. Foster, The Systems Group CEO to call on those accounts. She testified that these are relationships that she has had for the past fifteen years and that she intends to continue calling on these accounts. She maintains that notwithstanding the agreement that she signed, she had an understanding with Durante that allows her to contact relationships that she had established prior to becoming an employee of Edge.
C. The Defendant, Systems Group.
Carl Foster is the owner and President of Systems Group. He has owned and operated this business since 1985. It currently has one hundred and fifty five employees. Foster testified that the Hartford has been his client since 1986 and his company has been a preferred vendor or a Tier I vendor since the relationship first started. In addition, Cigna has been a client of Systems since 1986 and has been the Systems "biggest client." Foster also explained that his company has enjoyed a preferred vendor status with Cigna the entire time that it has been in business.
4/27/05 Tr. at 3.
Foster testified that when he offered the position to Worley, he discussed the Professional Practices Agreement with her. Based on his, as well as his counsel's review of the Agreement, he believed that Worley was not restricted from doing business at the Hartford or at Cigna. As a result, he has directed Worley to identify opportunities for consultant services with those clients.
II. STANDARD FOR THE ISSUANCE OF A PRELIMINARY INJUNCTION
"In general, a court may, in its discretion, exercise its equitable power to order a temporary injunction pending final determination of the order, upon a proper showing by the movant that if the injunction is not granted he or she will suffer irreparable harm for which there is no adequate remedy at law . . . In exercising its discretion, the court, in a proper case, may consider and balance the injury complained of with that which will result from interference by injunction." Moore v. Ganim, 233 Conn. 557, 569, n. 25, 669 A.2d 742 (1995).
It is well-established in Connecticut that a temporary injunction may issue provided that a party has established that he or she has "a reasonable degree of probability of success on the merits of its claim and the imminence of substantial irreparable injury for which there is no adequate remedy at law. The court must also consider the harm to the respective parties and to any public interests that may be affected by the entry of or failure to enter injunctive relief." Musto v. Opticare Eye Health Centers, Superior Court, Complex Litigation Docket at Waterbury, Docket No. 155663 (August 9, 2000, Hodgson, J.), citing Griffin Hospital v. Commission on Hospital and Health Care, 196 Conn. 451, 457 (1985), citing Olcott v. Pendleton, 128 Conn. 292, 295 (1941).
Irreparable injury and lack of an adequate remedy at law is considered to be automatically established where a party seeks to enforce a covenant not to compete. Segarino v. SCI Connecticut Funeral Services, Inc., Superior Court Judicial District of New Britain, Docket No. 499737 (May 22, 2000, Aurigemma, J.), 27 Conn. L. Rptr. 281, quoting Lampson Lumber Co. v. Caporale, 140 Conn. 679, 685 102 A.2d 875 (1954).
III. STANDARD FOR REVIEW OF A COVENANT NOT TO COMPETE
When considering a covenant not to compete, a court looks at five factors. In the case of Robert S. Weiss Associates, Inc. v. Wiederlight, 208 Conn. 525, 546 A.2d 216 529 (1988) citing Scott v. General Iron Welding Co., 171 Conn. 132, 368 A.2d 111 (1976), our Supreme Court stated that as follows:
The five factors to be considered in evaluating the reasonableness of a restrictive covenant ancillary to an employment agreement are: (1) the length of time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee's opportunity to pursue his occupation; and (5) the extent of interference with the public's interests.
IV. ISSUES IN DISPUTE
Edge maintains that it is entitled to a temporary injunction because it has demonstrated probable success on the merits of its claim, and that irreparable harm will result unless injunctive relief is provided. In addition, Edge asserts that there is no adequate remedy at law and that the equities favor the issuance of an injunction. Furthermore the purpose of the covenant not to compete is subverted and rendered ineffective, without the application of injunctive relief.
Worley, on the other hand, maintains that there are essentially three reasons that Edge will not succeed on the merits. First, Worley alleges that the agreement is ambiguous in that it does not expressly restrict her from sales activities. Secondly, Worley asserts that she and Durante had an oral agreement that the covenant not to compete would not restrict her from doing business with those clients with whom she had pre-existing relationships. Moreover, these clients utilize the services of many different vendors, not just Edge. To restrict her in this fashion, Worley argues, would be to dramatically affect her ability to earn a livelihood. Lastly, Worley maintains that Edge does not have a legitimate business interest to have the agreement enforced against her.
Edge argues that it will succeed on the merits in that the evidence has clearly shown that the parties have an enforceable covenant not to compete. Durante denies that he ever had an understanding with Worley regarding the enforcement of the Professional Practices Agreement other than what is stated in the language of the Agreement. Edge relies on the statement contained within the employment letter: "This letter and the enclosed Professional Practices Agreement contain terms and conditions under which you will be employed and supersedes all prior oral or written representations."
Regarding the claim that the language in the agreement is ambiguous in that it does not expressly use the term "sales" in the list of prohibited activities, Edge argues that it has successfully established that the parties intended it to apply to Worley's activities at Edge, which have clearly been shown to be sales, in that she was not otherwise employed by Edge.
Furthermore, Edge argues that Worley has already violated the covenant not to compete contained within the Professional Practices Agreement, causing it irreparable harm. Edge maintains that it is entitled to protect its goodwill in its customer relationships through a covenant not to compete contained within a Professional Practices Agreement.
In addition, Edge asserts that there is no remedy that can adequately protect its business, as well as its good will, other than an injunction.
Although Durante admits that Worley had pre-existing relationships with several of Edge's current clients, he maintains that she significantly nurtured and developed those relationships while employed for him and while he was paying a significant sum of money in the form of salary and expense account. He maintains that he is entitled to protect the investment that he made into those relationships.
V. CONCLUSIONS
It is clear from the evidence in this case, that the court has before it well-educated, intelligent and successful people. Steps were taken to ensure that if any dispute were to arise once the employment relationship was terminated, their rights were protected. However, now that the separation has in fact occurred, the parties find that the steps taken were insufficient to keep them from a legal dispute.
The court finds that the plaintiff has established that a temporary injunction should issue.
Having heard the testimony of the parties and examined the documentary evidence, it is found that the plaintiff has met the burden of demonstrating the probability that it will succeed on the merits. Furthermore, the nature of the undertaking demonstrates a reasonable basis for including the covenant not to compete in the agreement signed by both parties. There is no hint of coercion or a failure by the defendant to fully understand her obligations under the written agreement.
It is also found, based upon the evidence presented, that the agreement is not ambiguous in light of the nature of the duties that Worley was hired to perform for Edge, and that she in fact performed for Edge. The fact that there was discussion regarding the scope of the covenant not to compete, prior to executing the agreement, points to the reality that the parties intended the agreement to apply to a sales person and was not restricted to those individuals providing consulting services. Having previously been subject to a non-compete clause, Worley knew and understood the meaning of executing such an agreement, and the consequences of a signed agreement.
The testimony revealed that the type of covenant which is before the court is routine in the IT industry. In fact, the defendant had such an agreement when she began working for the plaintiff and the plaintiff insisted that they adhere to the terms of that agreement. Based upon the evidence presented, there is no basis for the defendant's claim of promissory estoppel or that she relied to her detriment on an oral representation which was not incorporated into the written agreement.
Applying the criteria set forth in Weiss, the court finds that the Professional Practices Agreement is reasonable and enforceable as to Worley. The evidence established that there are at least three hundred companies in which Worley could carry on her profession of placing IT consultants. The agreement limits her from doing business, for one year following her separation from Edge. In addition, the agreement does not prohibit her from working in the field of placing IT consultants but rather only with those who are Edge's clients and with whom she worked while employed at Edge.
It is also found that the plaintiff has shown that it will suffer irreparable harm, if the agreement is not enforced while the action is pending. It is true that Worley, had pre-existing relationships with several of Edge's clients, notably The Hartford and Cigna. However, it is also true that while employed at Edge she cultivated and extensively developed her contacts with these clients, as well as made new and potentially lucrative contacts.
It is undisputed, for example, that it was while employed at Edge that she was introduced to ESPN for the first time. The evidence has established that soon after leaving Edge, she called on and met with the hiring manager at ESPN to have lunch. Although this does not establish that she has attempted to make placements there, it does demonstrate swift efforts to begin to open ground to do so.
In addition, it was during her time at Edge that the Hartford instituted a new hiring process, called the Beeline, to manage the process of placing consultants. Under this new system, the Hartford restricts contact between the vendors and their hiring managers. All contact must go though Beeline. The evidence established that Worley made significant contacts with Beeline during this time, so much so, that when Beeline was interested in hiring its own personnel, Worley recommended an individual who was ultimately hired by Beeline.
Worley argues that Beeline is a neutral entity and therefore having good contacts with its employees does not give anyone an advantage. However, the evidence demonstrates that there are times that having good and close relationships can provide special privileges, such as a preview of future hiring needs. In addition, since it is Beeline that decides which resumes to pass along to the hiring managers, having good relationships can help make sure that your resumes are not discarded, but rather are given serious consideration.
VI. ORDER
The Application of the Plaintiff for A Temporary Injunction is granted. The Defendant, Karen Worley is enjoined from:
(a) utilizing or disclosing to any unauthorized person any confidential or proprietary information of Edge's clients that was acquired by Worley during the course of her employment at Edge.
(b) for a period of one year from the date of this order, from performing or seeking to perform any services performed by Worley while employed at Edge, including without limitation the placement of IT personnel, for any client of Edge for whom Worley performed such services at any time during the one-year period immediately prior to Worley's termination of employment from Edge on January 3, 2005.
(c) for a period of two years from the date of this order, from offering or seeking to offer employment to or employing directly or indirectly (as employees, contractors, consultants, etc.) any employee, consultant, subcontractor, or other agent of Edge who was employed by Edge during the one-year period immediately prior to Worley's termination of employment from Edge on January 3, 2005.
The Defendant, Systems Group is hereby enjoined from directing or in anyway inducing Worley from engaging in the above listed prohibited conduct.
Lopez, J.