North Carolina District Court Refuses to Enforce Overreaching Employee Non-competition Agreement

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.