Montana Court: Some Noncompete Clauses Unenforceable

Noncompete clauses in employee contracts may not be enforceable in Montana when firms fire or lay off workers, the state Supreme Court has ruled.

Last week’s ruling came in the case of certified public accountant Dawn Wrigg of Helena. She appealed a lower court ruling that she owed $133,000 to her former employer for doing work for a client of that firm after she was hired by another accounting firm, the Independent Record reported Wednesday.

The ruling from a five-member panel of the court found that Montana law strongly disfavors noncompete clauses in employment agreements unless there is a legitimate business interest. The ruling said an employer lacks a legitimate business interest in such an agreement when, under ordinary circumstances, it ends an employment relationship with the employee.

Wrigg was a former shareholder with the Great Falls-based accounting firm Junkermeier, Clark, Campanella, Stevens. She had signed agreements in 2004, 2005 and 2007 that said shareholders would pay JCCS an amount equal to 100 percent of the gross fees billed by JCCS to a particular client over a period of a year if a shareholder leaves the firm and within a year, provides any professional services to that client.

Wrigg was let go in May 2009 and eventually took a lower-paying job with another firm, Rudd & Co.

“It was devastating, when you fire somebody who’s been there for 23 years, who’s a partner, the first thing people are going to think is, ‘What did she do?”‘ Wrigg said. “It put a question mark on me. This gives me validation that I did nothing wrong.”

At Rudd, Wrigg did work for a client that she had worked with at JCCS and JCCS sought to enforce the noncompete agreement.

The Supreme Court said a letter JCCS wrote to Wrigg ending her employment “describes no refusal or failure by Wrigg to comply with JCCS policies or standards. The letter also describes no facts that would give rise to misconduct or allege that Wrigg had failed to perform diligently her employment duties.”

The high court sent the case back to District Court with instructions to vacate its declaration that JCCS can enforce its agreement and enter a judgment in Wrigg’s favor. But while the Supreme Court overturned the lower court ruling, it also said noncompete clauses could be considered reasonable if legitimate business reasons exist to justify them.

“A covenant may serve a legitimate business interest when an employee voluntarily leaves his employment to compete against and take business from, his former employer,” Justice Brian Morris wrote in the ruling filed on Nov. 22. “A court should analyze whether the former employee used trade secrets, customer relationships, or proprietary information that would provide an employee with an unfair advantage. An employer would have difficulty asserting this same legitimate business interest, however, when the employer initiates the termination.”

The ruling also said if an employee was fired for reasons related to conduct, a firm might have grounds for enforcing a noncompete clause.

Joe Siefert, who practices employment law in Helena, said the court actually strengthened noncompete agreements by stating that they may serve a legitimate business interest – unless the firm fires the employee.

He said if he were advising a group of employees thinking about breaking off from a firm and taking customers or clients along, he would advise them that the covenant could be enforced.

An attorney for Junkermeier did not return a phone call seeking comment.