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An Expansive Noncompete Gets Revised By the Court: Remember, Employers, a Noncompete That is Too Restrictive Will Not Always Hold Up


BMC Software, Inc. v. Mahoney - United States District Court, District of Minnesota


Facts:  Christopher Mahoney ("Mahoney") worked for BMC Software ("BMC") and held different positions while there, eventually becoming regional sales manager in the United States.  While at BMC, Mahoney signed an employment agreement and a confidentiality agreement (which included a nondisclosure and noncompete provision).  One of the provisions in the confidentiality agreement at issue in this case was a noncompete covenant that prohibited Mahoney from soliciting or selling any products that competed with BMC and also prohibited from working anywhere in the United States in a position that would be competitive with BMC.  The agreement further stated that Texas law would govern its provisions.  Mahoney subsequently signed the agreement in November 2012.

In mid 2015, Mahoney eventually left to work for BMC's biggest competitor as a global sales manager.  BMC subsequently sued Mahoney and alleged he breached the noncompete provision of his agreement.  BMC asked the Court for a preliminary injunction to prevent Mahoney from working at the new company anywhere in the United States for a period of one year. 

Holding:  At the outset, the Court applied Texas law to the analysis of the noncompete.  In looking at the facts of the case, the Court noted that under Texas law, "a reasonable area for purposes of a covenant not to compete is considered to be the territory in which the employee worked."  Mahoney's position at BMC involved being in charge of accounts in four to six Midwestern states.  However, in his position at the new company, he was to apparently lead the company's business efforts globally.  Based upon the territory of his former position at BMC and the territory in which his new position would encompass, the Court narrowed the noncompete to only a few states in which Mahoney had been in charge of customer accounts while at BMC. 

Judgment:  The United States District Court held that BMC's motion for a preliminary injunction be granted and that Mahoney be prohibited from working for his new company only in any capactity related to BMC's Midwestern customer accounts only, rather than be prohibited from working for hte new company anywhere in the United States.

The Takeaway:  Based upon the Court's reliance of Texas law here, I think this was the right call.  It is important to note that the specifics of Texas law limit the territory in which noncompetes can restrict an employee from working when they leave a company.  While BMC would have preferred that Mahoney not be able to compete with them anywhere in the United States for a year after he left, the fact that his work with customers at BMC did not span the entire country was problematic.  Had he been closely working with BMC customers in all 50 states, I think this noncompete probably would have held up in court.  However, the fact that his work with a few BMC customers was confined to such a small part of the country is what ultimately doomed the enforceability of the entire agreement.  

Lesson learned employers:  Just because you put it in writing and the employee agrees to it does not necessarily mean it is enforceable!

Majority Opinion Judge:  Judge Magnuson

Date:  June 9, 2015

Opinion:  http://law.justia.com/cases/federal/district-courts/minnesota/mndce/0:2015cv02583/149276/23/

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