Systems and Software, Inc. v. Barnes
178 Vt. 389, 2005 VT 95, 886 A.2d 762 (2005)
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Rule of Law:
A noncompetition agreement is enforceable if it is reasonably tailored to protect a legitimate employer interest, which extends beyond trade secrets and confidential information to include an employee's acquired knowledge of the employer's product strengths, weaknesses, and business strategies.
Facts:
- Systems & Software, Inc. designs, sells, and services specialized software for utility providers.
- In August 2002, Systems & Software hired Randy Barnes as a regional vice-president of sales.
- As a condition of employment, Barnes signed a noncompetition agreement prohibiting him from working for a competitor for six months after his employment ended.
- During his employment, Barnes gained inside knowledge of Systems & Software's products' strengths and weaknesses, its customer base, and marketing strategies.
- In April 2004, Barnes voluntarily resigned from Systems & Software.
- Shortly after leaving, Barnes formed a consulting company whose sole client was Utility Solutions, Inc., a direct competitor of Systems & Software.
- Barnes represented Utility Solutions at a trade fair, identifying himself as its sales director in a booth near the one operated by Systems & Software.
Procedural Posture:
- Systems & Software, Inc. filed a complaint and a request for an injunction against Randy Barnes in Vermont superior court (trial court).
- After a hearing, the superior court granted an injunction in favor of Systems & Software.
- The superior court entered a final judgment order enjoining Barnes from working for any direct competitor of Systems & Software for a six-month period.
- Randy Barnes (as appellant) appealed the superior court's judgment to the Vermont Supreme Court (highest court).
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Issue:
Is a six-month noncompetition agreement that prohibits a former employee from working for any direct competitor enforceable when the employer's protectable interest is the employee's inside knowledge of its products and business strategy?
Opinions:
Majority - Reiber, C.J.
Yes, the noncompetition agreement is enforceable. An employer has a legitimate protectable interest that is not limited to trade secrets or confidential customer information but also includes preventing a former employee from using acquired knowledge of the employer's product strengths and weaknesses, business practices, and customer needs to gain a competitive advantage. The court found that Systems & Software had such an interest, particularly in a niche market where the loss of a single contract could be significant. The six-month restriction was not unduly restrictive or greater than necessary, as a mere non-solicitation clause would be difficult to monitor given the nature of competitive bidding in the industry. Furthermore, Barnes, a sophisticated professional, knowingly signed the agreement and failed to provide more than a bald assertion of hardship to justify invalidating it.
Analysis:
This decision affirms that Vermont courts will enforce reasonably tailored noncompetition agreements and, significantly, broadens the scope of what constitutes a 'legitimate protectable interest.' By extending protection beyond traditional trade secrets to include more general 'inside knowledge' of a product's features and strategic weaknesses, the court gives employers greater latitude to restrict key employees in sales and strategy roles. This precedent makes it more difficult for former employees to work for direct competitors, even if they do not misappropriate specific confidential data, and places a higher burden on them to prove that such a restriction imposes an undue hardship.
