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<i>Palmer v. Marsh</i>: New Considerations for Non-Compete Agreements

By Keith R. Styles
August 30, 2005

The recent 11th Circuit ruling in Palmer & Cay, Inc., et. al. v. Marsh & McLennan Companies, Inc., No. 03-16248 (11th Cir. April 1, 2005) means corporate counsel should reconsider their approach to drafting and enforcing non-compete agreements. Reviewing a Georgia trial court's ruling in a declaratory judgment action that a non-compete agreement was unenforceable only in Georgia under Georgia public policy, the 11th Circuit ruled that the unenforceability ruling should be extended to any other lawsuit between the parties in any other state. The ruling means corporate counsel must carefully consider dispute resolution clauses and other aspects of employment agreements to ensure their company is not forced into a situation where a federal court sitting in a state hostile to non-competes issues an adverse decision that is then enforced nationally. In addition, the ruling has the effect of imposing additional due diligence burdens in the context of mergers and acquisitions.

The Facts

In 1997, Marsh & McLennan Companies, Inc. (Marsh) bought a national insurance brokerage firm in which James B. Meathe was both an employee and a shareholder. At the time of the acquisition, Meathe sold his stock to Marsh and signed a stock purchase agreement that contained customer and non-solicitation covenants. Meathe became the managing director and head of the Midwest region for Marsh. In 2002, Meathe signed another customer and employee non-solicitation agreement in exchange for rights to exercise certain Marsh stock options. Meathe was not a Georgia resident at the time he executed the two agreements.

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