Contract Law: Nike, Inc. vs. Eugene McCarthy

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Table of Contents

Facts
Issue
Holding
Rationale
Reference List

Facts

Eugene McCarthy has been working for Nike since 1993. Having proven himself to be a good worker McCarthy was offered a position of an eastern regional footwear sales manager. He began to perform his duties during March 1997, but the contract was signed on the 1^st of April 1997 as well as the “attached covenant not to compete and nondisclosure agreement as a condition of acceptance of the offer”, see Nike, Inc. v. Eugene McCarthy 379 F.3d 576 (2004).

Moreover, this document contained a phrase that “[s]ubsequent bona fide advancement of the employee with the employer” (see Inc. v. Eugene McCarthy 379 F.3d 576 (2004)) is necessary in case if the company wants the attached covenant to come into effect. Two years later McCarthy was offered a new position as the director of sales in the Brand Jordan division where he stayed until the day he resigned from the company. This has happened in June 2003. McCarthy was offered a position in Reebok in July 2003. This became the reason for the company Nike to appeal to the court. The parties agree that the document is enforceable, but there is a quarrel when the document came into effect.

Issue

Did the actions provided by McCarthy violate the attached covenant or the document fails to come into effect as being signed later there was no bona fide advancement.

Holding

The United States Court of Appeals, Ninth Circuit affirmed the decision of the district court that Eugene McCarthy violated the agreement, provided potential harm to the company, and had to leave the position offered by Reebok. Moreover, Reebok promised to hold the position for McCarthy while Nike had to pay him a salary for the restriction period according to the attached covenant.

Rationale

On the one hand, McCarthy was promoted to the new position in Nike Company before the agreement was signed. This means that there was no actual promotion under the contract that made the employee get to know specific and secret information. On the other hand, the employee began to perform his obligations one month earlier the contract was signed. Moreover, being aware of the secret information, McCarthy had to wait one restriction year before “be employed by, consult for, or be connected in any manner with, any business engaged anywhere in the world in the athletic footwear, athletic apparel or sports equipment and accessories business, or any other business which directly competes with NIKE or any of its subsidiaries or affiliated corporations” (see Inc. v. Eugene McCarthy 379 F.3d 576 (2004)) under the nondisclosure agreement McCarthy had to sign.

To be enforceable, the contract has to satisfy these three requirements, (1) it has to be time or place restricted, (2) it is to be reasonable (see Eldridge v. Johnston, 195 Or. 379, 245 P.2d 239, 250 (1952)), and (3) it has to be on good consideration. All these conditions were followed in the additional covenant and nondisclosure agreement that were the conditions for signing a contract devoted to employee promotion.

The information McCarthy represented to Reebok made harm to Nike’s sales that are the main problem that caused the court appeals. Thus, it is crucial to sign the contract before an employee is provided with the secret information and the statements in the contract should not be equivocal.

Reference List

Eldridge v. Johnston, 195 Or. 379, 245 P.2d 239, 250 (1952).

Nike, Inc. v. Eugene Mccarthy, 379 F.3d 576 (2004).

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Contract Law: Nike, Inc. vs. Eugene McCarthy

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