Three-Year Restriction Found Unreasonable in CPA Non-Compete Agreement

by Joseph C. Maya on Mar. 04, 2024

Employment 

Summary: Haims, Buzzeo & Co. v. Wikstrom, 2003 Conn. Super. LEXIS 2539

Case Background

Ms. Nancy Wikstrom owned a certified public accounting firm, Wikstrom & Company, which she sold to Haims, Buzzeo & Co. (HBC) on January 1, 2001.  The purchase agreement outlined the obligations of the respective parties and contained a non-compete covenant.  Ms. Wikstrom was to stay on as an employee of HBC, continuing to work as a certified public accountant (CPA) and she agreed to bring her clients’ business to the firm.

The non-compete agreement prohibited her, for a period of three years following termination, from soliciting clients and engaging in competing business activities within the city of Stamford, Connecticut.  In exchange for these covenants, Ms. Wikstrom was to receive employment, $30,000 monthly payments to begin on January 1, 2010, and compensation for the sale of her former company’s good will and stock.

The merger of the two accounting firms did not go very well and Ms. Wikstrom left HBC in March 2002 due to dramatic differences in business personality and management style.  She proceeded to start her own accounting firm, the Wikstrom Group, located in Stamford that provided the same accounting services as HBC.  HBC interpreted these actions as clear violations of the non-compete agreement and sued Ms. Wikstrom in Connecticut state court for breach of the restrictive covenant.

The company specifically claimed that she had “actively and purposefully tried to induce her former clients to come with her to the new accounting practice she created, and otherwise attempted to hinder and damage the plaintiffs in their practice”.  Ms. Wikstrom however claimed that the agreement was unenforceable and that she did not violate any legally binding clauses contained in the purchase and employment agreements.

The Court’s Decision

The court ultimately denied HBC’s request for an injunction preventing further violations of the non-compete agreement and concluded that the agreement was in fact unenforceable.  It reached this decision based on several factors: 1) HBS had failed to demonstrate it was likely to succeed on the merits of the case and 2) the company failed to prove that it had incurred irreparable harm because of Ms. Wikstrom’s actions.  After examining the facts of the case and the provisions of the non-compete agreement, the court held that injunctive relief was inappropriate and HBC was not entitled to an injunction restraining Ms. Wikstrom’s business actions.

Reasonability and Enforceability of the Restrictions

The company was not able to meet the burden of proof required to demonstrate to the court that it was likely to succeed on the merits of the case.  Most notably, the court addressed the reasonability and enforceability of the restrictions contained in the restrictive covenant.  The geographical limitation was reasonable in scope but this was not true for the three-year time restriction.

This, according to the court, was unreasonable because Ms. Wikstrom had been practicing as a CPA for over thirty years, had many long-standing loyal clients, and needed income from her chosen profession to sustain herself.  The three-year period was too long, in the opinion of the court, and unnecessarily restricted her business actions and ability to pursue her occupation.

Furthermore, HBC did not demonstrate that it had incurred irreparable harm or that it was likely to do so in the future.  The only clients that left HBC were those that were clients of Wikstrom & Company prior to the merger of the two accounting firms.  The court noted that those clients would actually be harmed if an injunction was granted and held that its denial was the only way to maintain the status quo between the parties.

By denying the request for an injunction, the court permitted HBC and Ms. Wikstrom’s new company to carry on their business activities as they had been doing the previous eighteen months (since Ms. Wikstrom voluntarily terminated her employment with HBC).


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