R.I. Federal Court: CVS entitled to injunction preventing former employee from working for Amazon's online pharmacy
Last month, Judge McConnell of the U.S. District Court for the District of Rhode Island published his decision in a case involving a former CVS executive who left CVS to take a new job with Amazon’s newly-acquired online pharmacy subsidiary. Judge McConnell’s decision is a good reminder for Rhode Island business owners and high-level employees alike that, while generally disfavored under Rhode Island law, noncompete clauses will be enforced and injunctions granted against former employees under the appropriate circumstances.
Our story begins in 2017, when CVS offered the executive stock options worth over $150,000 in exchange for his signature on a “Restrictive Covenant Agreement,” which, essentially, was a stand-alone noncompete agreement. In exchange for the stock options, the executive agreed that he would not compete with CVS or use confidential information he learned while working for CVS to assist a competitor. (Attention, employers: it’s not always necessary to offer a six-figure stock option in exchange for an employee’s signature on a noncompete agreement; some courts will hold that the consideration for such an agreement may be limited to the employee’s continued employment by the company!) The executive agreed to be bound by those terms throughout his employment with CVS and for 18 months after leaving CVS. However, in 2018, the executive interviewed for, and subsequently accepted, a similar job with Amazon’s new online pharmacy company.
CVS filed suit against the executive, seeking to enforce the noncompete agreement. One of the most efficient ways of accomplishing enforcement of a noncompete clause is by seeking a preliminary injunction from the court: precisely what CVS’ attorneys sought in this case. Judge McConnell analyzed CVS’ motion for a preliminary injunction under the traditional framework, which required CVS to establish four things:
1) That CVS was likely to win the case;
2) That, if the court refused to grant CVS’ motion, CVS would likely suffer “irreparable harm”;
3) That the “balance of equities” favors CVS; and
4) That an injunction would serve the public interest.
After reviewing the facts of the case and the arguments of CVS and the executive, the court agreed with CVS that it demonstrated all four of the above.
CVS’ work still wasn’t done, however: because Rhode Island law generally disfavors noncompete agreements, CVS also had to demonstrate to the court that the agreement was reasonable. Judge McConnell found that it was. He placed great emphasis on the value of the consideration the executive was paid in exchange for signing the agreement and on CVS’ legitimate business purpose in seeking to enforce the agreement (specifically, the fact that the executive had intimate knowledge of CVS’ confidential business information which would have been at risk of disclosure to a competitor if CVS’ motion for injunction was denied). He also found that the 18-month post-employment period of the noncompete agreement was reasonable.
There are a number of valuable takeaways from this case which may be instructive to Rhode Island small businesses and to high-level employees alike. If a noncompete clause contained in an employment agreement (or, as was the case here, in a narrower contract) is designed to protect the employer’s legitimate business interests, is not too broad in time or scope, and was supported by adequate consideration, it is likely that a Rhode Island court would grant an injunction preventing the employee from going to work for a competitor in violation of the agreement. It also made a difference to the court that the executive was a highly-compensated employee who effectively accepted a six-figure bonus in exchange for his agreement not to compete with CVS; the outcome of this case is certainly different if, instead of a high-level executive, CVS tried to enforce a similar agreement against a store clerk or a pharmacist.
If you are a Rhode Island small business owner seeking to protect your trade secrets or confidential information and need a Rhode Island employment contract or noncompete agreement prepared, or if you are a Rhode Island employee subject to a noncompete agreement, you will need a Rhode Island business and employment law attorney. Call the Law Office of Rob D’Alfonso today for a free initial consultation!