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.

North Carolina Court of Appeals allows Employment Law Action to proceed against State University despite Sovereign Immunity argument

The North Carolina Court of Appeals recently allowed an employment law action to proceed against a North Carolina university.  The case, Martinez v. The University of North Carolina, recognizes the right of individuals to sue the State in cases arising from breach of employment contract.

The plaintiff was a former provost of Winston-Salem State University who was asked by the school’s chancellor to resign his provost position and accept a full-time faculty position.   The plaintiff agreed to the request, and the parties entered a written contract to confirm the terms of the transition.  Under the contract, the plaintiff would continue to receive a full administrative salary of $180,000.00 until June 30, 2009.  He would then “retreat” to the Faculty of the School of Education where he would receive a salary commensurate with salaries of other senior faculty members.

As the transition date approached, WSSU notified the plaintiff that his annual faculty salary would be $85,000.00.  The plaintiff, feeling that this salary was not commensurate with salaries of similarly situated faculty members, initiated a grievance.  A faculty grievance committee determined that the salary was appropriate.  The plaintiff then appealed, in turn, to the new provost and to the chancellor of WSSU, both of whom affirmed the decision.

The plaintiff then filed suit for breach of contract.  WSSU moved to dismiss the suit on grounds that sovereign immunity prevented the suit.  The trial court granted the motion and dismissed the case.   In a decision issued last week, the North Carolina Court of Appeals reversed this ruling, allowing the case to proceed.  The ruling is a significant precedent inasmuch as it permits plaintiffs to circumvent a powerful governmental defense in North Carolina employment law cases based on breach of contract.

Sovereign immunity is a doctrine that generally prevents the State of North Carolina from being sued unless it has consented to the suit.  In considering the trial court’s dismissal on this basis, the Court of Appeals applied an exception to the doctrine.  The exception holds that when the State, through authorized officers and agencies, enters into a valid contract, it implicitly consents to being sued for damages in the event of a breach.  In such circumstances, the state occupies the same position as any other litigant. 

Because WSSU, as an agency of the State, entered into an employment contract with the plaintiff, the Court of Appeals determined that it waived sovereign immunity in the plaintiff’s action for breach of that contract.  Sovereign immunity is often a difficult defense to overcome in suits brought against the government.  The Martinez precedent provides a significant limitation to this defense in North Carolina employment law matters.