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AAMCO Barred By Court From Enforcing Non-Compete Agreement When it Overreached

Anytime someone works closely with a particular business, whether as an employee, franchisee, or even outside counsel, they are usually granted access to sensitive information regarding how the business is run. In order to keep their trade secrets safe and protect their business interests, companies frequently require certain people to sign a non-compete agreement. This type of agreement is usually included in an employment contract or, in some cases, a franchise contract. It places restrictions on when and where the person can do business, and sometimes even who the person can do business with. For example, stealing employees and/or customers from a business is generally considered to be sabotage and most non-compete agreements prohibit such practices.

Having a party sign a non-compete agreement and getting a court to uphold the agreement are two different things. Most courts recognize the need of businesses to protect their own interests and that one of the ways they do so is through non-compete agreements. But many courts consider whether the agreement protects only the company’s legitimate business interests. If the court deems the agreement to be overly broad, it could rule that the agreement created too heavy a burden on the individual, and so is not enforceable.

Robert and Linda Romano were not aware they signed a non-compete agreement when they bought an AAMCO franchise in Hollywood, Florida in 1992. After running their franchise for twenty years, the Romanos sold their shop and terminated their franchise agreement with AAMCO. They thought they ended on good terms until they opened Treasure Coast Transmissions, their new auto repair shop in Stuart, Florida. The new shop stands 90 miles away from their old AAMCO location and does not use the AAMCO logo or any of its trademarks.

Nevertheless, AAMCO sent them cease and desist letters, pointing out that the new business stands less than 1.5 miles from another AAMCO franchise. The Romanos have continued to run their business and filed a counterclaim against AAMCO, alleging the non-compete agreement is unenforceable. The case was filed in Pennsylvania district court and went before Judge Anita B. Brody.

AAMCO argued it had invested time and resources coming up with its own business methods and procedures for succeeding in its share of the transmission repair market. It further spent time and resources in training its franchisees (such as the Romanos) and therefore had a legitimate business interest to protect in asking the Romanos to shut down their new business venture.

Judge Brody agreed that AAMCO has legitimate business interests to protect, and even pointed to similar cases in which AAMCO has enforced its non-compete agreements against other franchisees. But the main difference was the other defendants had misused AAMCO’s trademarks or opened a competing business in the same location as their former AAMCO franchise. In this case, Judge Brody ruled the non-compete agreement was overly broad because it was not limited to the business interests of the Romano’s former franchise. She therefore refused to uphold the non-compete agreement and file an injunction against the Romanos, but she also refused the Romanos’ request for declaratory judgment against the non-compete agreement.

Our Chicago non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.

DiTommaso Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Plainfield, Oak Brook and Chicago have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommaso Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Yorkville and Oswego non-compete clause lawyers take cases from Naperville, Lake Forest and Northbrook and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 1-877-990-4990 today.