## Facts

- Merrill Lynch employed Reese M. Stidham III, H. Paige Scarborough, and John A. Bruner as account executives (stockbrokers) in its Athens, Georgia office after placing each in a costly training and licensing program.
- Each defendant signed an employment agreement with (1) a confidentiality and property-rights provision declaring Merrill Lynch’s records (including customer names and addresses) to be company property and prohibiting removal or disclosure, and (2) a one-year post-employment covenant restricting solicitation of Merrill Lynch customers whose identities were learned during employment.
- The defendants left Merrill Lynch to join a competing brokerage firm in Athens.
- Before resigning, the defendants copied and removed records containing customer names, addresses, and sales-related information and took them to the competitor.
- Merrill Lynch alleged the defendants used the copied information to solicit Merrill Lynch customers immediately after departure and sought injunctive relief.
- The district court granted an injunction enforcing both the confidentiality/records provision and the one-year post-employment non-solicitation/noncompetition clause; the defendants appealed.

## Issues

1. Whether Merrill Lynch was entitled to injunctive relief enforcing the confidentiality and property-rights provision protecting customer records and related information.
2. Whether the one-year post-employment non-solicitation/noncompetition covenant was enforceable under Georgia law or void as an unreasonable restraint of trade.

## Decision

- The court affirmed the injunction insofar as it protected Merrill Lynch’s proprietary records and confidential customer information and required return/nonuse of materials taken from Merrill Lynch.
- The court vacated the injunction insofar as it enforced the one-year post-employment non-solicitation/noncompetition covenant.
- The judgment was vacated in part and affirmed in part.

## Legal Principles

- An employer may obtain injunctive relief to prevent former employees from retaining, using, or disclosing the employer’s proprietary records and confidential customer information when the employment agreement clearly defines such materials as the employer’s property and prohibits removal or misuse.
- Under Georgia law, restrictive covenants in employment agreements are strictly scrutinized for reasonableness in time, geographic scope, and scope of prohibited activity; overbreadth renders the covenant unenforceable.
- Georgia law (as applied) does not permit judicial rewriting (“blue penciling”) of materially overbroad employment restrictive covenants; if a covenant is unreasonable in a material respect, it is void.
- An employer’s legitimate interests in training investment and customer relationships may be protected through enforceable confidentiality provisions and trade-secret/unfair-competition principles, even where a broader restraint on competition fails.

## Conclusion

The Fifth Circuit held that Merrill Lynch could enjoin former brokers from using or keeping copied customer records and confidential information, but it could not enforce an overbroad one-year post-employment non-solicitation/noncompetition restraint under Georgia law, so the injunction was affirmed only as to confidentiality and vacated as to the restrictive covenant on solicitation/competition.


Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Stidham, 658 F.2d 1098 (5th Cir. 1981)