Tennessee Court Strikes Down Non-Compete Agreement
In a recent decision, Julian Hinson d/b/a Trivia Time v. Thom O’Rourke, the Tennessee Court of Appeals upheld a trial court’s determination that a post-employment non-compete agreement was unenforceable.
Defendant Thom O’Rourke was an independent contractor for plaintiff Trivia Time, an entertainment business providing live trivia games at bars and restaurants in Nashville. Defendant worked for plaintiff for approximately two years. As part of his employment, defendant signed a noncompetition agreement, independent contractor agreement and confidentiality agreement. The noncompete agreement prohibited defendant from “directly or indirectly conducting activity that is competitive with any of the activities [defendant] conducted for Trivia Time” for a period of three years from the date of termination. Upon terminating his association with plaintiff, defendant opened a competing business and provided services to prior clients of plaintiff.
Plaintiff sent a cease and desist letter to defendant; however, defendant refused to stop competing with plaintiff. Plaintiff then filed suit for breach of contract and violation of the Tennessee Trade Secrets Act. The Chancery Court for Davidson County dismissed all claims finding that the non-compete agreement was unenforceable and the information received by defendant did not qualify as a “trade secret” under the Trade Secrets Act. The trial court found the non-compete provision enforceable because defendant was not privy to confidential information, received no specialized training, and therefore, plaintiff did not have a protectable business interest that warranted enforcement of the non-compete agreement.
On appeal, plaintiff argued that his company could demonstrate a legitimate business interest that warrants restraint on competition because he provided specialized training and trade secrets to defendant. The Court of Appeals, however, determined that plaintiff did not have a protectable business interest. The Court recognized that to establish a protectable business interest, the employer must show “special facts present over and above ordinary competition” so that the employee would have an “unfair advantage” over the employer. In determining whether an employee would have such an unfair advantage, Tennessee courts consider:
(1) whether the employer provided the employee with specialized training;
(2) whether the employee is given access to trade or business secrets or other confidential information; and
(3) whether the employee had such repeated contact with the employer’s customers that the customers would tend to see the employee as the “face” of the company.
“Specialized training cannot include general skills and knowledge of the trade . . . and trade secrets cannot be easily ascertainable in the trade.” The Court of Appeals agreed with the trial court’s conclusion that defendant did not receive specialized training or gain access to trade secrets, and therefore, the noncompetition agreement was unenforceable. The Court recognized that most of the information defendant learned about plaintiff’s business could be ascertained by any audience of the trivia game.
The Trivia Time decision is a reminder that Tennessee courts will not enforce any and every non-compete agreement. An employer must have a protectable business interest in order to enforce post-employment restrictive covenants, and the interest must be sufficiently special to make competition unfair. Here, plaintiff could have better protected its position in the marketplace by having a narrowly tailored non-solicitation agreement with defendant to prevent defendant from poaching trivia game clients.
If you have questions regarding the enforcement, drafting or negotiation of a non-compete or non-solicitation agreement, please check out my series of articles on Tennessee Non-Compete Law or contact me.