The U.S. Court of Appeals for the Ninth Circuit has affirmed a preliminary injunction issued by a district court, enforcing a noncompete agreement in a lawsuit filed by an insurance company against an employee who left to join a competing insurance company. The case is Aitkin v. USI Ins. Servs., Ltd. Liab. Co., No. 21-35497, 2022 U.S. App. LEXIS 12368 (9th Cir. May 6, 2022).
Michael Aitkin was employed by USI Insurance Services as a commercial agriculture insurance broker in Hermiston, Oregon. Aitkin and USI allegedly entered into a binding employment agreement in April 2018, in which Aitkin agreed to refrain from competing with USI during his employment and to provide 60 days' notice of his resignation to the company, according to court papers.
In February 2021, Aitkin abruptly resigned from his position without providing the required 60-day notice. According to USI's court papers, he immediately began working for Alliant, and soon after began to divert USI clients to Alliant.
The U.S. District Court in Portland, Oregon agreed to issue a preliminary injunction to enforce the non-compete agreement. That decision was affirmed by a three-judge appeals panel of the 9th U.S. Circuit Court of Appeals in early May.
According to the ruling, "[t]he district court clearly did not err," instead, it "properly considered the interests of 'non-parties' like Aitkin's former USI clients, and balanced them against the public's interest in enforcing valid contracts.
Aitkin argued that his non-compete clause violated public policy because he is entitled to the goodwill generated from his client relationships. The district court, and the appeals court panel found that Oregon common law establishes that employers have a protectable interest in the goodwill generated by their employees.
According to the panel, it "is not left with a 'definite and firm conviction that a mistake has been committed'" at the lower court level, and thus the district court did not abuse its discretion in granting the motion for preliminary injunction.
Editor's Note: According to several court decisions, an employers interest in client relationships is more valid than an employee's interest. The employer pays the employee to pursue those relationships. The court found that Aitkin had been referring clients to Alliant's employees, and had likely diverted and indirectly induced USI's clients to transfer their business to Alliant, which satisfied USI's burden of proof that Aitkin had breached the non-compete clause.
Non-compete agreements are relatively common; it is not unusual for an agency to require a non-compete agreement, often for the span of two years after a producer leaves the agency so the agency does not lose a lot of customers when any particular agent leaves. There are only so many customers in any given town, and a large agency may fear an employee taking a large section of the business when that employee goes elsewhere.