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A federal judge has refused to enforce a packaging supplies company’s noncompetition agreement after finding that the geographical limits it imposed were too broad and that existing workers who signed it were not given any consideration for doing so. In his 22-page opinion in Fres-co System USA Inc. v. Bodell, U.S. District Judge Stewart Dalzell held that when an employer becomes concerned that its noncompetition agreement is overbroad and therefore legally unenforceable, it cannot adopt a new policy that relies on nullification of the prior policy as consideration. “We cannot ignore the Pennsylvania Supreme Court’s admonition that restrictive covenants are disfavored and historically viewed as a trade restraint that prevents a former employee from earning a living,” Dalzell wrote. “Given the over-reaching terms of Fres-co’s noncompete adhesion form, we cannot view it as anything other than a restraint unnecessarily preventing [plaintiff] from earning his living in the business he knows,” Dalzell wrote. Lawyers for Fres-co System argued that the new version of the policy lessened the limits it placed on workers because it reduced the restricted period in the agreement from two years to one and eliminated a liquidated damages provision. The new policy also explicitly stated that workers were signing it “in consideration of the nullification of a prior confidentiality and noncompetition agreement.” But Dalzell found that Fres-co System had conceded that the company redrafted the policy in 1999 “because it was concerned that the 1998 agreement might be unenforceably overbroad.” If the prior policy was unenforceable, Dalzell said, it would have effectively imposed no restrictions. As a result, Dalzell said, the new policy “would not decrease the period of a restriction (as Fres-co contends), but rather it would increase restrictions … by creating a new one-year restriction where none existed before. This hardly constitutes consideration.” The ruling is a victory for defendant Robert Bodell and his lawyers, Anne E. Kane of Schnader Harrison Segal & Lewis and Robert J. Kaufman of Kaufman Miller & Sivertsen of Atlanta. According to court papers, Bodell began working for Fres-co System in July 1998 as a sales representative. Fres-co, which is based in Telford, Pa., manufactures and distributes flexible packaging materials and packaging machinery. Its principal customers are roasters and packagers of coffee. Before coming to Fres-co, Bodell had worked for PrintPak, another flexible packaging company involved in the coffee industry. Bodell’s sales territory for Fres-co was the southeastern United States and the Caribbean. In 2004, Bodell was responsible for about $4 million of packaging sales and $2.5 million in equipment sales. About three weeks before he was hired, Bodell signed a confidentiality and noncompetition agreement. One year later, he signed a new version of the agreement. Dalzell found that when the new policy took effect, “all 350 Fres-co employees — from the lowest clerical or maintenance worker to the firm’s senior officers — had to sign the same noncompete agreement, and no employee was permitted to negotiate the terms.” Bodell, he noted, was not paid any extra money to sign the 1999 agreement. After leaving Fres-co in May 2005, Bodell began working for Ultra Flex Packaging Corp., a Fres-co competitor. Despite the restrictions in the noncompetition agreement, Bodell contacted at least nine of Fres-co’s customers, eight of whom had relationships with Ultra Flex prior to Bodell’s starting at that company. But Dalzell also found that, to date, Fres-co has not lost any money as a result of Bodell’s departure. Fres-co’s lawyers — Edward T. Ellis and Carmon M. Harvey of Montgomery McCracken Walker & Rhoads — filed suit alleging claims of breach of contract; misappropriation of trade secrets and confidential and proprietary information; and tortious interference with existing and prospective contractual relations. After a hearing in July, Dalzell refused to issue an emergency injunction. Now, after more extensive hearings, Dalzell has ruled that the noncompetition agreement is unenforceable. Under Pennsylvania law, Dalzell said, noncompete agreements are enforceable only where they are “incident to” an employment relationship and “reasonably necessary” for the protection of the employer. Pennsylvania law also requires that the restrictions in such agreements be “reasonably limited in duration and geographic extent,” Dalzell said. Courts in Pennsylvania have also held that when a noncompetition agreement is struck after the worker is hired, it “must be supported by new consideration,” Dalzell noted. Fres-co’s lawyers argued that its noncompete form protects legitimate business interests — customer goodwill and trade secrets. But Dalzell found that “the terms of the noncompete form far exceed what is reasonably necessary to protect them.” The form’s language, Dalzell noted, covers not only customers in the coffee market, but all “lines of business” for Fres-co and “any affiliate of Fres-co, including coffee, pet food, agricultural chemicals and polymers. Fres-co’s affiliates include an Italian company, Goglio and a Chinese company, Goglio Tiangin, Dalzell noted. “Therefore, the form language by its terms reaches at least four industries on three continents,” Dalzell said. “This international cross-industry protection is unquestionably broader than is necessary to protect any legitimate concerns Fres-co might have as they relate to a salesperson who sold for them in the coffee market in the southeastern United States and the Caribbean,” Dalzell wrote. Fres-co’s lawyers argued that if Dalzell found the agreement to be overly broad, he should narrow it and enforce a modified version. But Dalzell found that Fres-co was not entitled to a “reformation” of its unenforceable policy. “Having recognized an overbreadth problem with its 1998 agreement, Fres-co failed properly to address it. Now it asks this court to take on a wholesale rewriting that properly belongs to corporate decision-makers working with their counsel,” Dalzell wrote. “We decline this expansive invitation to exercise our equitable powers to help this employer stifle legitimate competition by a salesman merely seeking to ply his trade,” Dalzell wrote.

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