Case Study Law 1

v.

Eloy Castillo

RILEY, Circuit Judge.

DCS Sanitation Management, Inc. (DCS) sued three of its former employees,

Eloy Castillo, Efren George Castillo, and Adolfo Martinez (collectively, former

employees), alleging the former employees breached noncompete agreements. DCS appeals the district court’s1 denial of DCS’s motion for a preliminary injunction and grant of summary judgment in favor of the former employees. We affirm.

NONCOMPETITION AFTER TERMINATION: For a period of one (1)

year following the date of termination of employment for any reason, I

will not directly or indirectly engage in, or in any manner be concerned

with or employed by any person, firm, or corporation in competition

with [DCS] or engaged in providing contract cleaning services within a

radius of one-hundred (100) miles of any customer of [DCS] or with any

customer or client of [DCS] or any entity or enterprise having business

dealings with [DCS] which is then providing its own cleaning services

in-house or which requests my assistance or knowledge of contract

cleaning services to provide its own cleaning services in-house. In the

event of violation of this covenant, [DCS], in addition to any other rights

and remedies available at law or otherwise, is entitled to an injunction to

be issued by a court of competent jurisdiction enjoining and restraining

employee from committing any violation of this provision and employee

hereby consents to the issuance of the injunction.

The Agreements also contained a choice-of-law provision: “APPLICABLE LAW:

This Agreement shall be subject to and interpreted in accordance with the laws of

Ohio.”

In June 2003, after DCS cleaned the processing side of the Tyson plant for

eighteen years, the Tyson plant solicited bids from competing cleaning companies. As a result of the bidding process, on September 18, 2003, the Tyson plant selected

Packers Sanitation Services, Inc. (Packers) for the cleaning contract. Packers hired

all of DCS’s employees, including the former employees, and on November 8, 2003, Packers started cleaning the Tyson plant.

On May 14, 2004, DCS sued the former employees, alleging (1) breach of the

noncompete agreements, (2) a “substantial probability” the former employees would disclose DCS’s trade secrets and confidential information, and (3) breach of contract.

DCS sought (1) to enjoin the former employees in accordance with the noncompete agreements, (2) to enjoin the former employees from disclosing DCS’s trade secrets and confidential information, and (3) money damages…

DCS appeals the district court’s ruling, urging this court to reverse the district

court’s entry of summary judgment and denial of a preliminary injunction, and to

remand with instructions to enjoin the former employees under Ohio law.

Having concluded Nebraska law applies, we now turn to whether the

noncompete agreements are valid under Nebraska law. Pursuant to Nebraska law, a

noncompete agreement is valid if it is (1) “not injurious to the public,” (2) “not greater than is reasonably necessary to protect the employer in some legitimate interest,” and (3) “not unduly harsh and oppressive on the employee.

“An employer has a legitimate business interest in protection against a former employee’s competition by improper and unfair means, but is not entitled to protection against ordinary competition from a former employee.” Id. at 185. A noncompete agreement “may be valid only if it restricts the former employee from working for or soliciting the former employer’s clients or accounts with whom the former employee actually did business and has personal contact.

We conclude the district court properly held the noncompete agreements were

overbroad and unenforceable. The district court recognized the noncompete

agreements prohibit the former employees from, directly or indirectly, being

concerned in any manner with any company in competition with DCS, and from

providing contract cleaning services within one hundred miles of any entity or

enterprise “having business dealings” with DCS, including attorneys, accountants,

delivery services and the like. The breadth of the noncompete agreements effectively put the former employees out of the cleaning business within an extensive region. We hold the district court did not err in concluding Nebraska courts would not enforce such overly broad noncompete agreements.

Therefore, we affirm the well reasoned judgment of the district court.