Court Denies Preliminary Injunction Sought by IBM Because Former Employee Signed Non-Compete Agreement in Wrong Place

A recent decision illustrates the importance for employers of making sure non-competition agreements are correctly executed by employees.

On June 1, 2009, IBM sought a preliminary injunction in the United States District Court, Southern District of New York, enjoining its former Vice-President of Corporate Development, David L. Johnson, from continuing his employment as Senior Vice President of Strategy at Dell Inc.  On that date, doubt was raised as to whether Johnson’s alleged non-competition agreement with IBM had ever been duly executed, and the Court ordered expedited discovery on the issue and another hearing on June 22, 2009.

At the June 22 hearing, the evidence showed that at the time Johnson was first asked to sign the agreement, he was hoping to be promoted, and so in an effort to extend the time during which he could consider whether to enter into the agreement, Johnson purposefully signed the non-competition agreement not on his own signature block, but on the signature block designated for IBM.  Johnson testified that he believed that doing so would prevent the agreement from becoming valid and would allow him more time to consider whether to commit to the IBM non-compete agreement.

As the Court noted, Johnson’s “gambit appears to have worked just as he envisioned.”  Although IBM argued to the Court that the non-competition was valid, on numerous occasions IBM had sought to have Johnson properly sign the agreement, indicating that IBM did not actually consider the incorrectly signed agreement to be valid. Moreover, with respect to Johnson’s incorrectly signed document, IBM had not followed its usual protocols of sending it to an IBM representative for signature or retaining an original copy of the document in its files.

In view of the evidence, the Court found that IBM could not show a likelihood of success on the merits of its breach of contract claim.  The Court also found that the balance of equities favored Johnson, and it denied the preliminary injunctive relief sought by IBM.

A lesson for employers from this decision is that no ambiguity should be accepted as to whether the employee has assented to a restrictive covenant.  Particularly given the public policy of New York and other jurisdictions disfavoring non-competition agreements, when it is time to seek enforcement of such an agreement, the employer must be able to show that the employee unequivocally agreed to its terms.