509 P.3d 1099
Haw.2022Background
- In 2008 Gagnon signed a Confidentiality and Non-Competition Agreement with Prudential Locations (Locations) containing: a one-year statewide ban on forming her own brokerage (non-compete) and a ban on soliciting persons "employed or affiliated" with Locations (non-solicitation).
- Gagnon resigned in June 2013 and opened Prestige (a RE/MAX franchise) in August 2013; several Locations agents left to join Prestige.
- Locations sued for breach; discovery produced no evidence Locations’ trade secrets or confidential materials were misused and showed inconsistent application of non-compete agreements among Locations’ personnel.
- The circuit court granted summary judgment to Gagnon, finding the clauses aimed solely at preventing competition (illegal under HRS § 480-4) and alternatively unreasonable under Traeger factors. The ICA reversed on reasonableness but did not address whether the clauses were ancillary to a legitimate purpose under HRS § 480-4(c).
- The Hawaiʻi Supreme Court affirmed that preventing competition is not a legitimate ancillary purpose under HRS § 480-4, affirmed summary judgment for Gagnon as to the non-compete clause, but held a genuine issue of fact existed on the non-solicitation claim as to one agent (Au) because evidence suggested active initiation of contact; that claim was remanded.
Issues
| Issue | Plaintiff's Argument (Locations) | Defendant's Argument (Gagnon) | Held |
|---|---|---|---|
| Validity of non-compete clause | Clause protects proprietary systems, training, and prevents poaching; reasonable in scope/duration | Clause’s sole purpose is to prevent competition; no evidence of trade-secret use; enforcement imposes undue hardship | Non-compete unenforceable: preventing competition alone is not a legitimate ancillary purpose under HRS § 480-4; summary judgment for Gagnon affirmed |
| Whether ICA erred by not addressing ancillary legitimate purpose | ICA need not revisit reasonableness if scope/duration reasonable | ICA must assess whether clause is ancillary to a legitimate purpose under HRS § 480-4(c) | ICA erred in failing to analyze whether the clauses were ancillary to a legitimate purpose; that analysis is required |
| Validity of non-solicitation clause (scope: agents/affiliates) | Protects workforce stability and investment in training; reasonable and ancillary | Gagnon did not solicit agents; agents were independent contractors; no impermissible solicitation occurred | Non-solicitation clauses can be legitimate if ancillary to protectable interests; here, a genuine issue of fact exists as to one agent (Au) about active solicitation, so claim as to Au must be remanded |
| Meaning of "solicit" in non-solicitation clause | Broadly covers inducing or encouraging others to leave | "Solicit" requires active initiation of contact; mere disclosure that one is leaving is insufficient | Court adopts active-initiation standard: solicitation requires evidence the defendant actively initiated contact; summary judgment improper as to Au (email + lunch) but proper otherwise |
Key Cases Cited
- Technicolor, Inc. v. Traeger, 57 Haw. 113, 551 P.2d 163 (1976) (establishes reasonableness test for restrictive covenants and that § 480-4(c) exceptions are not exclusive)
- 7's Enterprises, Inc. v. Del Rosario, [citation="111 Hawai'i 484, 143 P.3d 23"] (2006) (training that yields special skills can be a protectible interest when combined with other factors)
- Edwards v. Arthur Andersen, LLP, 189 P.3d 285 (Cal. 2008) (discusses modern limits on enforceability of employee non-competes)
- Kahaikupuna v. State, [citation="109 Hawai'i 230, 124 P.3d 975"] (2005) (appellate courts may affirm summary judgment on alternative grounds)
- Atmel Corp. v. Vitesse Semiconductor Corp., 30 P.3d 789 (Colo. App. 2001) (interprets "solicitation" to require actively initiated contact)