LACONIA — Color Brian Gray’s world black and orange.
Twenty-three years ago Gray went to work at Meredith Harley-Davidson as a mechanic. Later, after Meredith Harley-Davidson was sold and renamed Laconia Harley-Davidson, Gray was named the dealership’s service manager.
But Gray decided last April to make a career move. He went into business for himself, thinking at first that he would be working on dirt and other performance bikes. While Gray’s idea may have been to make a clean break, the reputation he built over nearly 25 years working on Harleys followed him out the door, according to his account.
Soon, he said, he was getting unsolicited calls from former clients asking if they could bring their bikes to him for service, and working on Harleys quickly became the main part of his new business. By last September, his business had grown to the point that he decided to open a shop in Laconia. He announced the fact with a post on his Facebook page.
Days later, Gray’s former employer slapped him with a civil suit, saying that he was in violation of the noncompetition agreement he signed when he was at Laconia Harley.
That agreement, which Gray signed 4½ years ago, stated he “... would not work as an employee, contractor, consultant, owner, etc., for any Harley-Davidson dealer or other entity which sells or services Harley-Davidson motorcycles or merchandise within a 100-mile radius (of Laconia Harley-Davidson for one year.) Four other management-level employees also signed the same agreement, Gray said.
Gray, 47, is fighting back, arguing that the noncompete covenant prevents him from earning a livelihood. “It’s what I know. It’s my career,” he said.
Laconia-Harley, for its part, counters in the suit that Gray can make a living servicing other makes of motorcycles. Harley-Davidson is “one of over 100 motorcycle manufacturers,” the suit, filed by American Road Management, Laconia Harley’s parent legal entity, states at one point.
As for the noncompete agreement, Gray said, “You’re kind of forced to sign these things (in order to keep the job).”
Laconia Harley spokesman E.J. Powers said, “Mr. Gray has worked for the dealership for more than a decade, serving as a senior member of our team, which afforded him access to detailed customer information and insight into our business practices. Mr. Gray,” he added, “resigned and shortly thereafter and opened a competing business providing service to Harley-Davidson motorcycles just a few miles away, in clear violation of his signed noncompete agreement. We aren’t requiring Mr. Gray to adhere to a different set of standards than our other senior managers. We are simply asking him to stand by his commitment, which is designed to protect the business we have built and the livelihood of some 40 employees at our dealership.”
To Gray, this is a case of a big business “coming after the little guy.”
For Laconia Harley, it is a matter of preserving its market share.
That Gray has opened a shop in a bay at Belknap Tire in Laconia has caused “irreplaceable lost revenue to Laconia Harley-Davidson’s legitimate business interests,” according to the suit filed in Belknap Superior Court.
This makes the second time in recent months that efforts by a local business to enforce a noncompete contract with a former employee has made it into the news.
Hampshire Hospitality Holdings recently took a former beautician at the Cascade Spa at Mill Falls to court because she had gone to work for another hair salon in Meredith, in breach of a noncompete agreement not to work as a hairstylist within 25 miles of Meredith for one year. Shortly after the case became public, Hampshire Hospitality Holdings dropped the suit.
There are no known statistics as to the prevalence of noncompete agreements among New Hampshire businesses. But a U.S. Treasury Department report found that 18 percent of American workers are currently restricted by noncompete clauses.
Generally speaking there are two types of noncompete agreements: Those that are intended to protect a business’s customer base — also called goodwill, and those that are designed to safeguard sensitive business information such as customer lists, product development, sales and marketing plans — so-called trade secrets.
The extent to which those agreements are enforceable varies from state to state.
They are completely illegal in California. Some states in the South allow them in rare instances. And states like New Hampshire allow them. But New Hampshire courts are tightening up on the situations under which they will enforce such agreements, according to Marcus Hurn, a professor at the University of New Hampshire School of Law.
Their enforceability depends on two factors: Fairness and reasonableness, he said.
Noncompete agreements that are too broad or too burdensome are less likely to be enforced than those that are more narrowly tailored, or where the business a can concretely demonstrate that a former employer has hurt its business, either by purposely luring away its customers or taking its trade secrets to a competitor.
“The general rule is that a noncompete has to be narrowly construed and that it cannot cause undue hardship to the (former) employee,” explained Mike Persson, the attorney who successfully defended Koren Purinton, the former Cascade Spa at Mill Falls beautician.
Persson also said an agreement is more likely to be enforceable if it is explained and signed before the worker takes a job, rather than after they are already on the payroll.
In a noncompete agreement, the worker is giving up certain personal and legal rights. Courts generally consider such contracts valid only when a business offers the worker something of value in return for waiving those rights. If the contract was entered into before the before the worker starts the job, the employer can say it offered a job in exchange for the noncompete agreement. But in the case of existing employees, the question arises as to what the employee is receiving of value in exchange for the agreement, unless it was tied to a pay raise or promotion.
Gray said Laconia Harley’s lawyer said in a recent court hearing he needed to sign the agreement in order to keep his job.
Hurn said courts are “quite willing” to enforce confidentiality agreements that are designed to protect a business’s trade secrets.
However, according to the Treasury Department report, among those workers who have signed noncompetes, fewer than half say they had access to trade secrets that a potential rival company could take advantage of.
The two most recent cases in Belknap County deal with protecting a business’s goodwill — in other words the probability that the old customers will continue to do business with the old place.
In both the Cascade Spa and Laconia Harley cases, the defendants said they did not recruit customers from their former place of employment. Rather, they said, some customers sought them out on their own — that the customer chose to be loyal to the employee instead of the former employer.
In agreements to protect goodwill, Hurn and Persson said the duration and geographical scope of the agreement need to be reasonable in order to be enforceable.
In the case of Purinton, Persson argued that his client’s personal circumstances, coupled with the money a hair stylist can expect to make, meant that if she had abided by the agreement she would not have been able to work as a hairdresser for one year, a restriction he considered unreasonable.
Hunter Taylor, of Alton, a retired attorney who practiced and taught business law during his career, said another important distinction to keep in mind in these types of noncompete cases is whether it was the employer who brought the customers to the employee, or the employee who brought the customers to employer. If the latter is the case, he said, then it stands to reason that some old customers will choose to follow the employee because their loyalty is to the individual service provider.
Gray said people at Laconia Harley knew he was servicing Harleys for former customers, but nothing happened until he posted the opening of his new location on Facebook. He said in those early months he was even buying the parts for his repair jobs at Laconia Harley.
“My gut feeling is that New Hampshire is getting less tolerant of noncompete agreements,” said Hurn, who has taught law for 40 years and teaches the introductory course on contracts at UNH Law.
Noncompetes are prevalent in many lines of work, Hurn said. They are very common among medical and accounting practices, and Persson said many hair salons resort to them too.
Much of their force, the attorneys say, lies in the fact that employees are afraid to run the risk of being taken to court, a costly prospect for someone on a modest income. In other words, noncompete agreements may have a chilling effect on employees who are bound by them.
“Many, many times they are not breached because the employee doesn’t want to spend the money,” said Perrson, referring to legal costs. “Even if (the agreements) are unenforceable (the worker) will have to defend themselves in court.”
Gray said that, as of December, his legal fees had amounted to $7,500. Persson said Purinton’s legal costs were “significant.”
Workers should be wary of signing such agreements, and if presented one they should try to get legal advice so they can better understand exactly what rights they are signing away, Persson said.
Massachusetts recently enacted a law that requires businesses that want employees to sign such agreements to tell them they are free to get legal advice before signing it. The employer must give the employee at least 10 days to consider the matter.
Gray is confident he will win his case against his former employer. He also knows that, come this April, his noncompete agreement expires and regardless of what happens in court he will then be able run his business as he wishes. With the expiration three months away he considers the suit a form of harassment.
Judge James D. O’Neill III, who is hearing the case, has taken Gray’s and Laconia Harley’s arguments under advisement, but has yet to issue a ruling.