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A non-compete covenant that provides for a remedy for an employer should a former employee decide to compete is not prima facie enforceable, a Pennsylvania common pleas court judge has ruled. In Kendall v. Metz, Butler County Judge Martin J. O’Brien said that under state supreme court case law, only contracts that seek to protect the kind of client relationship that cannot be replaced by money can be enforced prima facie. The plaintiffs, George Kendall and his partnership, Kendall Metz & Co., alleged that Larry Metz violated a “covenant not to perform services” that he signed with the partnership in 1988. Kendall alleged that Metz withdrew from the partnership in October 2000 and began servicing Kendall’s clients in his new partnership, Metz & McCaw, in violation of the covenant. The plaintiffs petitioned the court to issue a preliminary injunction to keep Metz and his partnership from soliciting their clients and to immediately return all client files taken from Kendall’s office. The plaintiffs cited a 1977 state Supreme Court case, Bryant Co. Inc. v. Sling Testing and Repair, which also dealt with a former employee allegedly violating a non-compete agreement. In Bryant, the high court upheld the lower court’s issuance of an injunction. “The Supreme Court found that the interest sought to be protected by the issuance of the preliminary injunction was the relationship which had been established on behalf of appellees’ companies through efforts of the former employee,” O’Brien said. “The court further found that that interest was clearly an interest which was incapable of adequate protection by monetary damages and that the use of equitable relief was needed to avoid the threatened harm.” But O’Brien said the Bryant case was distinguishable because the covenant set forth specific accounts that the former employee was prohibited from selling directly. “Based on the language of that covenant, the Bryant court found that the covenant sought to prevent more than just the sale that might result from the prohibited contract,” O’Brien said, “but also found that the covenant was designed to prevent a disturbance in the relationship that had been established between appellees and their accounts through prior dealings.” Reiterating a statement the supreme court made in an earlier ruling, the 1974 case Bettinger v. Carl Berke Associates Inc., the Bryant court said a covenant “of this type” is prima facie enforceable. Following the Bryant court’s reasoning, O’Brien said that type of covenant is the only kind that is enforceable in equity. “A covenant that does not prohibit competitive conduct but rather provides a remedy in the event that competitive conduct transpires is not enforceable in equity through injunctive relief because there is an adequate remedy in law,” O’Brien said. The covenant between Kendall and Metz stated that any former employee who competes with the partnership within 24 months after his or her withdrawal “shall compensate the partnership” under a scheme provided elsewhere in the contract. “The court cannot find that this covenant is ‘of the type’ as described in the aforementioned cases,” O’Brien said. “It is not the type of covenant which was included in the partnership agreement in contemplation of a possible need in the future to protect the partnership/client relationship.” O’Brien also said he could not order the return of the client files because “the court would in effect be ruling that the files belong to [Kendall], thereby resolving the underlying controversy in the case.”

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