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Apr 3, 2020

Sometimes You Just Can't Compete

A recent decision by the Missouri Court of Appeals, Southern District, demonstrates the importance of specifically crafted non-compete provisions in employment contracts. Missouri courts generally enforce non-compete provisions if they are reasonable in scope and duration, meaning they are enforced if they are no more restrictive than necessary to protect the legitimate interests of the employer. However, what is reasonable depends upon the facts of each case.

In MFA Oil Co. v. Martin, MFA Oil filed suit against its former employee Martin, claiming he violated a non-compete provision in his employment agreement. In May, 1999, Martin and MFA Oil entered into the employment agreement wherein Martin accepted a position as plant manager for MFA at its plant in Seymour, Missouri. The agreement, which identified Martin as a “MANAGER,” contained a non-compete provision that stated in part as follows:

For a period of three (3) years after MANAGER leaves the employ of MFA OIL, MANAGER agrees not to work for another company engaged in the sale of petroleum products within a thirty five (35) mile radius of the MFA OIL AB7 Seymour plant. For a period of three (3) years after MANAGER leaves the employ of MFA OIL, MANAGER agrees not to individually engage in the sale or delivery of petroleum products within a thirty-five (35) mile radius of the MFA OIL AB7 Seymour plant.

Martin held various positions with MFA at various locations in Missouri from 1999 through 2018. Although he was only employed at the MFA OIL AB7 Seymour plant for a year, all of his positions with MFA Oil were situated within 35 miles of the Seymour plant. After his tenure at the Seymour plant, MFA moved Martin to its plant in Hartville, Missouri, where he served as the plant manager. Martin remained as the Hartville plant manager for a short time and then became the plant manager at MFA’s plant in Mansfield, Missouri.   

Martin served as the Mansfield plant manager for the next 15 years.  Then, however, during a restructuring process at MFA, Martin lost his managerial title and became a “service tech.” Although he earned a similar wage as a service tech, he lost his eligibility for a manager bonus.   In addition, his interaction with customers was limited as a service tech to the time he set or picked up tanks.

A year later, Martin again assumed a managerial position with MFA at the Mansfield plant. He was not reinstated as the plant manager, but instead became the operations manager. MFA then moved Martin to Rogersville, Missouri, to serve as the operations manager at that location.

He worked in Rogersville for the next 20 months, then resigned. Two months after resigning from MFA, Martin organized a new business enterprise, Martin Propane LLC, to engage in retail propane sales. Martin Propane competed with MFA and had a large propane storage tank, plant, propane delivery truck and tank trailer located in Mansfield, Missouri. The storage tank and plant and “most, if not all, of” Martin Propane’s customers were within 35 miles of MFA’s Seymour plant.

MFA filed suit, asking the trial court to prohibit Martin from selling propane within 35 miles of the Seymour plant individually or with another company. The trial court granted injunctive relief to MFA Oil, enforcing the covenant not to compete according to its terms and entered judgment against Martin prohibiting him for three years from selling bulk propane within 35 miles of MFA’s Seymour plant.   It did, however, limit the phrase “petroleum products” to bulk propane not sold for recreational use.

On appeal, Martin argued that (1) the covenant as enforced was overbroad; (2) his acceptance of a demotion after 15 years as plant manager in Mansfield and subsequent placement in a different managerial position effectively nullified the Manager Agreement he had long ago executed, including the covenant not to compete; and (3) the covenant not to compete is a prohibited restraint of trade in violation of R.S.Mo. § 431.202.

The Court of Appeals rejected Martin’s argument that the covenant not to compete was overbroad. In so holding, it relied on prior Missouri cases holding that in appropriate circumstances, two and three year non-compete agreements for employees, sales representatives or office managers were reasonable. 

Further, the Court of Appeals affirmed the trial court’s judgment, stating that Martin agreed in the contract not to compete for three years after he “left the employ” of MFA. Martin did not argue that any of his early transfers to the other MFA locations or his employment as a service technician constituted a termination of his employment. He instead argued that the acceptance of the Mansfield operations manager position, some 17 years after he executed his original employment agreement, terminated that agreement. The Court of Appeals rejected this argument, stating that, because Martin was continuously employed by MFA, he agreed not to compete for a period of time after he “left the employ” of MFA and was a manager at the time of his resignation, the contract was in effect at the time of Martin’s resignation.

The Court of Appeals also rejected Martin’s claim that the covenant not to compete constitutes a restraint on trade in violation of R.S.Mo.  § 431.202 because the statute, by its terms, is limited to covenants “not to solicit, recruit, hire or otherwise interfere with the employment of one or more employees.” The covenant not to compete in Martin’s employment agreement did not promise to do any of those things and, therefore, it was not applicable.

Of particular interest in this opinion is that each of the places where Martin worked was located within 35 miles of MFA’s Seymour plant. However, for the majority of his employment with MFA, he was located in Hartville, Missouri, which is 23 miles away from Seymour. Despite this change in location, the Court of Appeals did not amend the terms of the non-compete to prohibit his actions within 35 miles of Hartville. Instead, the court strictly enforced the terms of the contract as written and held that Martin could not engage in the prohibited activities within the proscribed distance from the Seymour plant, a location at which he had not been employed since 2000. 

This opinion serves as a reminder that when crafting non-compete provisions, employers and employees alike should be careful regarding its terms, including how they define the geographical area where competition is prohibited and under what circumstances the agreement is terminated. While defendant Martin had not been employed in Seymour for almost 18 years and had not been a plant manager for nearly two years, the Court of Appeals nevertheless interpreted the contract strictly according to its terms. This case also serves as the most recent reminder to prospective employers that when recruiting a manager or sales representative who has previously worked in the same industry, in the same geographic area, attention must be paid as to whether there is a noncompete agreement that may preclude his competing with his former employer.

For a discussion of Missouri Supreme Court case law governing the enforceability of noncompete agreements, see our earlier blog post on the Supreme Court’s Copeland and Kennebrew decisions.