Employees' Noncompete Contract Unenforceable

Willard Packaging Co. Inc. is a Maryland corporation that manufactures and distributes packaging materials throughout Maryland, Virginia, the District of Columbia and Delaware.

Willard Packaging Co. Inc. is a Maryland corporation that manufactures and distributes packaging materials throughout Maryland, Virginia, the District of Columbia and Delaware. In March 1998, Dana Salkeld, one of the owners of Willard, hired Demetrio Javier as an outside salesman.

In June 1998, Javier attended a sales meeting at Willard, at which he and other members of the sales staff were presented with a contract that prohibited them from working for a competing business within a 75-mile radius of Willard's headquarters for one year after leaving Willard's employ. The contract also required them to pay liquidated damages of $50,000 in the event of a breach. Salkeld informed the employees at the meeting that their future with Willard "would not be very bright" if they did not sign the agreement. Javier and the other employees signed the agreement and each received $50 in cash.

Javier quit Willard in April 2003. Before he left, Salkeld discussed the restrictive covenant with him. About six months after leaving Willard, Javier took a job with Atlas Alexandria Packaging LLC, a company in northern Virginia that manufactures and distributes packaging materials, and is a major competitor of Willard in the District of Columbia area.

Willard sued Javier for breach of the noncompetition agreement and sought $50,000 in damages. The Maryland trial court granted judgment for Javier, ruling that the liquidated damages clause in the contract-was not based upon a reasonable-expectation of damages, and was unenforceable. Because Willard had not proved any actual damages caused by Javier's activities, the court awarded Willard nominal damages of $1.

Willard appealed to the Court of Special Appeals of Maryland, and lost. In ruling for Javier, the court stated: "It is clear from the facts that the (noncompetition) clause itself was an agreement based upon inequalities of bargaining power. The lack of true arms-length dealing between Willard and its employees militates against a finding of reasonableness. Moreover, Willard presented no evidence of actual damages resulting from Javier's breach and resulting employment with Atlas."

Willard Packaging Co. v. Javier, 899 A.2d 940 (Md. App. 2006), Court of Special Appeals of Maryland, June 1, 2006.

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