A noncompete agreement is enforceable against an independent contractor by a sucessor business, the Kentucky Court of Appeals ruled recently in Kegel v. Tillotson, No. 2008-CA-001938 (October 30, 2009). This case answered two questions previously not decided by Kentucky courts.
The Kegels bought a business, Unique Promotional Products, from a Michelle Chapman on January 16, 2007. Previously, Roxanna Tillotson, as an independent contractor, had entered a noncompete agreement with Unique Promotional Products providing that upon termination of her relationship with Unique Promotional Products she would not engaged in a competing business for 5 years within 350 miles. A week after Chapman sold Unique Promotional Products to the Kegels, Tillotson terminated her relationship with the company and began a competing business the next day. The Kegels filed suit to enforce the noncompete agreement that Tillotson had initially entered into with Chapman.
The Kentucky Court of Appeals ruled that the noncompete agreement initially entered into by Tillotson with Chapman was enforceable by the Kegels, reasoning
While Tillotson may have been an independent contractor, her relationship was with the business, Unique Promotional Products, and not with Chapman, the individual. Accordingly, her commitment was one not to compete with the business, not with Chapman herself. Therefore, we find that the noncompete clause in the matter sub judice, having been freely entered into by Tillotson, was assignable to the Kegels.
The court did remand the case for further discovery on whether the terms of the noncompete -- 5 years and 350 miles -- could be enforced or should be reformed on grounds of unconscionability, noting that under the "blue pencil" rule "courts have no difficulty in restricting a [noncompete agreement] to its proper sphere and enforcing it only to that extent."
