Another Noncompete Case, With a Twist

Today’s post is about another noncompete agreement case, Horner International Co. v. McKoy. In many ways it is similar to last week’s case which I blogged about here so this post will be brief. See the earlier post for background on noncompete agreements generally.

McKoy worked in the flavor materials manufacturing business. He ran a factory in Durham which produced flavorings for food and tobacco by processing natural products such as cocoa, coffee and ginseng. He subsequently switched to another company which did similar work but was located in New Jersey.

This switch was in violation with McKoy’s signed noncompete agreement, which forbid him from working for or being “an advisor, consultant, or salesperson for, or becoming financially interested, directly or indirectly, in any person,proprietorship, partnership, firm, or corporation engaged in, or about to become engaged in, the business of selling flavor materials.” This restriction had no geographical limitation.

Like in last week’s case, the court struck this agreement down as being too broad. The court said it was overly restrictive both in the type of activity which it attempted to bar and also in the worldwide geographical scope.

The reason I am writing about this case so soon after the previous similar case is the very interesting concurrance written by Judge Steelman (if you follow the link to the case it starts on page 23). A concurrance is what a judge writes when he does not disagree with the main opinion but has some separate point that he wants to make.

The concurrance in this case says first that everything in the main opinion is correct under existing North Carolina law. Judge Steelman goes on to say, however, that the existing rules for noncompete agreements date from a time when essentially all businesses were local and therefore only had a legitimate interest in restricting former employees from competing with them locally. An example of this is last week’s case, where the former employer and the new employer each operated in a small number of counties in eastern North Carolina.

However, Judge Steelman argues that today’s case illustrates a much more modern global business model. The former employer and the new employer each market specialized products, food flavorings, all over the country, and maybe the world. Thus even though one factory is physically located in North Carolina and the other in New Jersey, they are in actual competition with each other.

The Court of Appeals cannot make changes to the law. However, Judge Steelman urges the North Carolina Supreme Court to look again at the law on noncompetes and allow them be enforced over a broad geographical range, at least where the former employer competes with the new employer over that whole range.

It will be interesting to see if the Supreme Court takes him up on his call.

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