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Labor & Employment — Breach of Contract – Restrictive Covenants – Lack of Consideration – Corporate Acquisition

Teresa Bruno, Opinions Editor//November 2, 2015//

Labor & Employment — Breach of Contract – Restrictive Covenants – Lack of Consideration – Corporate Acquisition

Teresa Bruno, Opinions Editor//November 2, 2015//

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AmeriGas Propane, L.P. v. Coffey (Lawyers Weekly No. 15-15-1000, 24 pp.) (Louis Bledsoe III, J.) 2015 NCBC 93

Holding: Where plaintiffs’ merger with defendant Coffey’s former employer was accomplished through an equity purchase (not through an asset purchase), and where Coffey continued working without interruption after the merger was completed, Coffey’s employment with plaintiffs did not constitute consideration for the non-competition and non-solicitation provisions in the “post-employment agreement” that Coffey signed after the merger.

The court grants defendants’ motion for summary judgment.

Coffey worked as a truck driver delivering propane to customers of Heritage Operating, L.P. Plaintiffs acquired Heritage, and Coffey signed a post-employment agreement that included non-competition, non-solicitation, and non-disclosure provisions.

Sixteen months after plaintiffs acquired Heritage, they fired Coffey. Coffey went to work for plaintiffs’ competitor, defendant Marsh L.P. Gas, Inc., and many of plaintiffs’ former customers subsequently became Marsh customers.

Plaintiffs’ promises not to decrease Coffey’s wages for one year and to provide severance benefits in the event he was terminated as a result of the merger within two years were promises made to Heritage for the benefit of all Heritage’s employees – including those who did not sign a post-employment agreement. Therefore, those promises could not have been consideration for plaintiffs’ post-employment agreement with Coffey.

Although Coffey became eligible for bonuses and wage increases under the post-employment agreement, plaintiffs were not under any obligation to increase Coffey’s compensation. Mere eligibility for discretionary raises does not constitute consideration to support a restrictive covenant.

Although Coffey received a two percent hourly wage increase almost nine months after he entered into the post-employment agreement and a $500 bonus a year after signing the agreement, there is no evidence that this increased compensation was related in any way to Coffey’s agreement to the restrictive covenants. Therefore, the increased compensation does not constitute consideration for the restrictive covenants (i.e. the non-competition and non-solicitation provisions).

The North Carolina appellate courts have not specifically addressed whether continued employment can constitute consideration for a non-disclosure agreement. The court agrees with the reasoning of Sirona Dental, Inc. v. Smithson, No. 3:13-cv-714-RJC-DSC, 2015 U.S. Dist. LEXIS 6080 (W.D.N.C. Jan. 20, 2015), and concludes that a confidentiality agreement need not be supported by additional consideration if the agreement does not constitute a restraint of trade.

In this case, prohibiting Coffey’s disclosure of customer identities was a restraint of trade. Customer identities can typically be obtained by a cursory, roadside examination of the vendor logo on a homeowner’s outdoor propane tank. The prohibition on Coffey’s disclosure of plaintiffs’ customer identities was to preclude Coffey from soliciting plaintiffs’ customers. Since this provision was unsupported by consideration, it is an unenforceable restrictive covenant to this extent.

However, the non-disclosure provision also seeks to prohibit the use or disclosure of customer credit information, gas usage patterns, and pricing and marketing information relating to plaintiffs’ customers. This portion of the provision is not in restraint of trade; therefore, Coffey’s employment by plaintiffs is sufficient consideration to support the provision to this extent.

Nevertheless, plaintiffs offer no evidence that Coffey actually used or disclosed such information. Although a customer list went missing after Coffey was fired, it was weeks after Coffey’s termination before anyone noticed that the list was missing. Furthermore, it is undisputed that Coffey has a remarkable memory and knew all of the customers on his route, raising considerable doubt as to whether he had a need for the list and thus a motive to acquire it. Plaintiffs have failed to bring forward sufficient evidence of Coffey’s breach of this provision to sustain their breach of contract claim.

Motion granted.

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