The Eastern District View of Missouri Non-Compete Agreements

           The Federal District Court for the Eastern District of Missouri has had a couple of occasions to address corporate efforts to enforce non-compete agreements in Missouri.  The Court’s guidance is noteworthy as non-compete agreements are ever-more ubiquitous throughout a whole range of commercial settings.

            Exactly three years ago the Court addressed this issue in the matter of Kforce, Inc. v. Beacon Hill Staffing Group, LLC., et al.  The parties in Kforce were two competing staffing agencies.  Kforce sought to enjoin its former manager from allegedly violating non-disclosure and non-solicitation provisions of a contract the manager executed.  After limited discovery, Judge Perry held an evidentiary hearing.  She later denied Kforce’s requests for injunctive relief. 

            The manager Kforce sought to enjoin worked on the sales side in the technology arena of each company’s staffing agency.  First and foremost, Judge Perry noted that the staffing industry is highly competitive and client companies usually retain multiple agencies to fulfill the same position.  The importance of this fact is a critical example of how the enforceability of each post-employment restriction will ultimately depend upon case-specific facts.  Since the employee at issue was an Account Manager, the hearing focused on “the relative importance of an account manager’s personal relationships with the client’s hiring managers.  Hiring managers accustomed to being wined and dined were undoubtedly dismayed to hear that there could be any such debate!  But I digress.

            Kforce maintained that it bestows substantial confidential data compilations upon its account managers, in addition to critical client contact information.  Importantly, it also proved that it restricts access to this information to only certain employees.  As one might expect, the defendants downplayed the value of these contacts and this information.  Finally, Kforce was a much larger company than defendant Beacon Hill (“Beacon”).

            The contractual provisions at issue read as follows:

          Confidential Information. The EMPLOYEE recognizes and acknowledges that the FIRM has, through the expenditure of substantial time, effort and money, developed, compiled, and/or acquired certain confidential information and trade secrets which are of great value to the FIRM in its operations. The EMPLOYEE further acknowledges and understands that in the course of performing his/her duties for the FIRM, he/she will receive and/or have access to the trade secrets and other confidential information of the FIRM. 

The EMPLOYEE agrees that he/she will not make any use of, take, download, publish or disclose, or authorize anyone to use, take, publish or disclose, any of the FIRM’s trade secrets or other confidential information, for any reason, except to the extent authorized and required in the course of performing his/her duties on behalf of the FIRM. Upon request of the FIRM, the EMPLOYEE will promptly return or destroy all expressions of trade secrets and confidential information in his/her possession and control. EMPLOYEE shall cooperate with the FIRM’s efforts to verify such return or destruction. 

As used herein, the term “trade secrets and other confidential information” shall include, without limitation: (a) client or prospective client lists and client or prospective client contact information (including but not limited to business cards, contact persons, and hiring managers); (b) client job openings and job orders and client pricing information; (c) actual or prospective applicant, employment candidate, employee or consultant lists; (d) actual or prospective applicant, employment candidate, employee or consultant qualifications, contact information, and resumes; (e) actual or prospective applicant, employment candidate, employee or consultant compensation and benefits; and (f) other client, applicant,

employment candidate, employee or consultant data or information. 

  1. a) Covenants relating to clients: the EMPLOYEE agrees that upon termination of his/her employment for any reason, the EMPLOYEE will not, for a period of twelve (12) months from the date of termination, directly or indirectly solicit or accept business that is competitive with the FIRM from any client with whom the EMPLOYEE had contact while employed by the FIRM, nor will the EMPLOYEE for such period directly or indirectly attempt to divert or assist others to divert any such client’s business from the FIRM to a competitor.  

          Understandably, the Court appeared to put no weight upon either the fact that the employee had not read the contract before signing it, or that he was unhappy with his former employer.  Regardless, it concluded that Beacon had failed to establish that it was likely to prevail on the merits at trial.  Thus, no injunction.

            Beacon brought four underlying claims:  1) breach of contract; 2) breach of fiduciary duty;  3) tortious interference;  4) misappropriation of trade secrets.  In order to obtain a preliminary injunction against its former employee, Beacon had to demonstrate that it was likely to prevail at trial on one of these claims.  Unfortunately for Beacon, the Federal Court began its analysis with the following:

          “Much has been written about an employee’s covenant against working for his employer’s competitors. Agreements of this kind restrain commerce and limit the employee’s freedom to pursue his or her trade. Enforcement of such agreements, therefore, is carefully restricted.”  Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 73-74 (Mo. banc 1985). The Missouri Supreme Court has identified the following four “valid and conflicting concerns” at issue in the enforcement of non-compete agreements:  

First, the employer needs to be able to engage a highly trained workforce to be competitive and profitable, without fear that the employee will use the employer’s business secrets against it or steal the employer's customers after leaving employment. Second, the employee must be mobile in order to provide for his or her family and to advance his or her career in an ever-changing marketplace. This mobility is dependent upon the ability of the employee to take his or her increasing skills and put them to work from one employer to the next.  Third, the law favors the freedom of parties to value their respective interests in negotiated contracts. And fourth, contracts in restraint of trade are unlawful.  

Healthcare Services of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 609 - 610 (Mo. banc 2006) (internal citations omitted). In Missouri, restrictive covenants are enforceable only to the extent that they are demonstratively reasonable by protecting an employer from unfair competition without imposing unreasonable restraint on the former employee.  Armstrong v. Cape Girardeau Physician Associates, 49 S.W.3d 821, 825 (Mo. Ct. App. 2001).  “An employer may only seek to protect certain narrowly defined and well-recognized interests, namely its trade secrets and its stock in customers.”  Id. “The enforcing party must also show that the agreement is reasonable in scope, both as to place and as to time.” Id.   

The Court proceeded to analyze the Missouri Uniform Trade Secrets Act (417.453) as well.  According to the Court, the following factors should be considered in determining whether an employer’s given information is a trade secret:  

(1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. 

Copeland, 198 S.W.3d at 610 (internal citations omitted). 

The employer bears the burden of proof to substantiate its asserted interest in its trade secrets.  Mo-Kan Central Recovery Co. v. Hedenkamp, 671 S.W.2d 396, 400 (Mo. Ct. App. 1984).  Judge Perry concluded that Kforce was unable to meet that burden, at least at the preliminary injunction stage.

          Finally, the Court set out the Missouri standard for intentional interference with a contract or business relationship: “Under Missouri law, intentional interference with a contract or business relationship requires proof of (1) a contract or valid business expectancy, (2) defendant’s knowledge of the contract or relationship, (3) a breach induced or caused by defendant’s intentional interference, (4) absence of justification, and (5) damages.” Hurst, 477 F.3d at 959 (citing Rice v. Hodapp, 919 S.W.2d 240, 245 (Mo. banc 1996)).  “While lawful competition would be a defense, competing by improper means, including the use of a misappropriated trade secret obtained in violation of a fiduciary duty is not a valid justification.”  Dieckhaus, 24 S.W.3d at

700 (citing Briner Elec. Co. v. Sachs Elec. Co., 680 S.W.2d 737, 741 (Mo. Ct. App. 1984)).

            In sum, the Court refused to issue an injunction based upon the “non-compete”, primarily due the factual disputes.  In other words, the court did not conclude that any particular provision of the employment agreement was unenforceable as a matter of law.  As such, the former employee may have gone on to win or lose on the facts before a jury.

            Last summer, Judge Autrey of the Eastern District entertained another motion for a temporary restraining order based upon a “Noncompetition Agreement” in Express Scripts, Inc. v. Lavin, et al., 2017 WL 2903205.  I’ll take a closer look at Judge Autrey’s analysis and conclusion in that matter in a future blog.