A lawsuit between two nurse staffing companies reminds us
that not all non-competition agreements are enforceable under North Carolina
law. In Clinical Staffing, Inc. v.Worldwide Travel Staffing, Ltd., the U.S. District Court for the Eastern
District of North Carolina found a non-competition provision contained within
nurse employee contracts to be unenforceable because the restrictive language
was over broad. The court’s order
provides a thorough overview of North Carolina law on this frequently
confronted subject.
The underlying dispute began after Worldwide Travel Staffing
(“Worldwide”) won a contract to provide nursing services to various facilities
operated by the North Carolina Department of Health & Human Services. In order to staff positions at the facilities,
Worldwide hired a number of nurses who had previously worked with its
competitor, Clinical Staffing, Inc. d/b/a Dzeel Clinical (“Dzeel”). The complaint also alleged that a number of
nurses resigned from Dzeel and signed on with Worldwide in violation of a
non-competition provision contained within the Dzeel employee contract. Dzeel additionally complained that Worldwide
induced the nurses to join Worldwide, in part by advising the nurses that the
non-competition agreement was unenforceable.
Worldwide then allegedly placed many of the nurses in the same state facilities
where the nurses had previously worked as Dzeel employees.
Dzeel asserted two claims against Worldwide: (1) that
Worldwide tortiously interfered with its nurse contracts, and (2) that
Worldwide violated North Carolina’s Unfair and Deceptive Trade Practices Act. Both claims were based on the non-competition
provision contained within Dzeel’s nurse employee contracts. That provision stated, in part, the
following: “I will not provide service to any Dzeel client or individual who
has received services under the direction of Dzeel Clinical
for a period of (6) six months from my termination date.”
After determining that the case hinged upon the
enforceability of the non-competition agreement, the court noted that covenants
not to compete between employers and employees are not viewed favorably by
courts. Consequently, a party attempting
to enforce such an agreement has the burden to prove the covenant
reasonable. In North Carolina, such
agreements are enforceable only if they are: (1) in writing; (2) reasonable as
to [the] terms, time, and territory; (3) made a part of the employment
contract; (4) based on valuable consideration; and (5) not against public
policy. Courts examine the
reasonableness of a no-compete agreement’s time and geographic restrictions by
balancing the substantial right of the employee to work with that of the
employer to protect its legitimate business interests. The time and geographic restrictions are
weighed in tandem, such that a greater scope of one will require a smaller scope
of the other. The restrictions must be
no wider in scope than is necessary to protect the business of the
employer.
Worldwide moved for summary judgment on grounds that the
non-competition provision was unenforceable under the above principles. In response to the argument that the language
was overly broad in prohibiting a former employee from providing any “service,”
Dzeel argued that the term should be interpreted to mean nursing services. Noting that the contract must be strictly
construed against the party who drafted it, the court rejected this argument
and instead applied the plain language of the agreement.
As written, the restrictive language was over broad. The court noted that the language prevented a
former employee from performing any service of any kind to any Dzeel client or
individual worldwide. The agreement was
therefore unenforceable. It necessarily
followed that both of the claims asserted in the plaintiff’s complaint failed
as a matter of law. First, the court
concluded that Dzeel could not establish a claim of tortious interference with
contract because no valid contract existed.
In addition, there could be no valid claim for unfair and deceptive
trade practices since the agreement was unenforceable and Worldwide had been correct
in so advising Dzeel’s former employees.
The case is a reminder to employers of the need to craft
non-competition agreements with care so as not to run afoul of the exacting reasonableness
requirements imposed by North Carolina law.
As the court’s ruling underscores, non-competition agreements are not
favorably, and overreaching agreements can be avoided.
