Tennessee Court Of Appeals Finds That Former Employee Breached Non-Compete Agreement Through Actions Of His Subordinates

In November 2017, the Tennessee Court of Appeals upheld a Nashville trial court's determination that a former employee violated his noncompete agreement by managing employees who solicited competing business in the restricted territory. See ADP, LLC v. Manchir, 2017 WL 5185458 (Tenn. Ct. App. Nov. 8, 2017).

Facts

Eric Manchir worked as a sales manager for ADP, LLC ("ADP"), which is in the business of human resources and business outsourcing. Manchir's territory included parts of the Nashville area, Knoxville, Chattanooga, and Birmingham. As part of a stock option agreement, Manchir agreed that, for a period of one year after his employment was terminated, he wouldn't "directly or indirectly" work for a competitor within the territory he serviced for ADP. He also agreed not to "directly or indirectly" solicit ADP's clients and potential clients during that one-year period.

Manchir resigned to accept a regional sales director position with Paycor, Inc. ("Paycor"), an ADP competitor. Part of Paycor's services that Manchir managed overlapped with ADP's services. Portions of Manchir's territory in Tennessee and Alabama also overlapped with Manchir's assigned territory with ADP. After Manchir resigned, ADP lost a number of accounts from Manchir's former territory to Paycor.

ADP sued Manchir for breaching his agreement. Manchir responded that the agreement was unenforceable. He also claimed that he wasn't in breach it because he, personally, did not solicit competing business in the overlapping territory; instead, he merely managed sales representatives who may have done so. ADP, however, developed evidence that Manchir trained and managed sales representatives who were competing in overlapping territories and that Manchir received commissions on their sales to former ADP customers.

Chancellor Ellen Lyle determined that Manchir was in breach of the contract. Although she found that the prohibition against soliciting prospective clients is overbroad and unenforceable, she entered an injunction preventing Manchir from continuing to manage competing activities in the overlapping territories. Manchir appealed.

Ruling

The Tennessee Court of Appeals upheld the trial court's decision. First, the court determined that ADP had a legitimate business interest to support the restrictions, because all of Manchir's customer contacts with ADP were developed as a consequence of his employment with ADP. According to the court, this...