In early July, the Ohio Court of Appeals in Stark County not only affirmed the trial court’s refusal to enforce the plaintiff-employer’s non-competition agreement against a competing, former employee, but the court also affirmed a significant damage award of $180,000 against the employer and in favor of the former employee on the employee’s unfair competition claim. United Studios of America v. Laman, No. 2007CA00277, 2008-Ohio-3497 (7/7/08). The basis for the employee’s successful counter-claim was that the employer only brought the non-competition lawsuit to cause the employee to incur legal fees.
In Laman, the employer operated a mobile photography studio which provided portraits at grocery stores and shopping malls, etc. in several states. Since at least 2000, the employer required all employees to sign an employment agreement which contained the following non-competition clause:
“Employee acknowledges that Company will expend considerable time, effort and expense in the training of employee and the methods used by Company; that Employee will acquire confidential and valuable knowledge and information as to Company's accounts, customers and business patrons, as well as confidential and valuable knowledge and information concerning the methods and forms developed and used by Company; and that Employee will acquire such knowledge and experience that upon leaving Company's employment for any reason, his engaging directly or indirectly, either alone or in association with any other person or firm, in the family portrait photography business will cause unfair disclosure of such valuable knowledge and information, irreparable harm and financial loss to Company."
The defendant employee signed such a clause when he was hired and he was later promoted to Vice President of the Company. Nonetheless, he eventually resigned from the plaintiff employer and formed his own photography business in Colorado. He then obtained a contract to provide portraits to customers of Safeway of Colorado. There is no discussion in the court’s opinion whether the plaintiff employer operated in Colorado or whether the employee competed against the employer in other states.
The court explains that the plaintiff employer filed suit against the former employee for breach of his non-competition agreement. The lawsuit apparently only sought monetary damages and did not seek equitable relief. When the employee failed to respond to the complaint, the employer moved for default judgment. However, on the same date, the employee requested and later obtained permission to not only file an answer to the complaint, but to file counter claims against the plaintiff employer for, among other things, unfair competition. The trial court granted summary judgment to the employee on the non-competition claims and on his counterclaims. Following a damages hearing, the court awarded damages to the employee in the amount of $180,260.39, including $116,468 in punitive damages and $58,234 in attorney fees.
The employer argued on appeal that the trial court erred in dismissing its non-competition claim on the grounds that the employer failed to prove that it suffered any damage from the breach of the non-competition clause. After all, according to the employer, the contract itself acknowledged that the employer would suffer harm from any breach of the non-competition provision. The court was unmoved:
“A contractual provision acknowledging harm will occur in the event of a breach, without more, is insufficient to withstand summary judgment. Where, as here, a party makes a claim for money damages, the party must demonstrate actual damages. [The employer] filed the within action alleging claims for breach of contract, breach of fiduciary duty, breach of Ohio Trade Secrets Act and intentional interference with contractual relationships. [The employee] moved the trial court for summary judgment on all of the above claims alleged in the complaint, and for summary judgment as to its counterclaim for unfair competition. [The employee’s] motion for summary judgment raises the issue that [the employer’s] claims must fail because Appellant has no evidence demonstrating damage or injury resulting from [the employee’s] actions. In response, [the employer] merely cites the contract provision stipulating damage to[the employer]. The contract did not include a provision for liquidated damages. While the contract provision stipulating to damages and irreparable harm may well provide grounds for an equitable injunction, we find [the employer’s] claims require proof of actual damages, and [the employer] failed to meet the burden.”
In contrast, the court affirmed the employee’s damage award because the employee “presented admissible evidence establishing [the employer’s] motives in filing the instant action were to cause [the employee] to incur legal fees and costs. Accordingly, the trial court properly granted summary judgment in favor of” the employee on his counterclaim for unfair competition against the plaintiff employer.
Insomniacs can read the court’s decision in full at http://www.sconet.state.oh.us/rod/docs/pdf/5/2008/2008-ohio-3497.pdf.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
