Brief Fact Summary. An employee signed an employment agreement forbidding the employee, if he stopped working for the employer, from competing with the employer. After the employer/employee relationship ended, the employer sought to enforce this clause.
Synopsis of Rule of Law. If a covenant not to compete "is strictly limited in time and territorial effect" and "otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee" it will be enforceable.
Restrictive covenants in employment contracts are in partial restraint of trade and are enforceable only if strictly limited in time and territorial effect and are otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee.View Full Point of Law
Issue. Is the covenant not to compete in this agreement enforceable?
Held. No. The court observes first that not all kinds of restrictive covenants are unenforceable. If a covenant not to compete is "is strictly limited in time and territorial effect" and "otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee", it will be enforceable. There are two types of territorial restrictions. First, those concerning the territory where the employee is employed. Second, those involving the entire territory in which the employer does business. The first category is generally enforceable. The second category is generally not valid "absent a showing by the employer of the legitimate business interests sought to be protected."
• The court then concludes the non-compete clause before it is invalid for three reasons. First, because its scope includes the employer's and principal's territory and the Plaintiff does not justify this territorial restriction. Second, the fact that the Defendant was not allowed to accept employment with a competitor "in any capacity" is too broad. This imposes a stricter limit "upon the employee that is necessary for the protection of the employer." Third, the non-compete covenant is not enforceable where the "nature of the business activities in which the employee is forbidden to engage is not specified with particularity." In other words, the covenant "fails to specify with particularity the activity which the employee is prohibited from performing."
• Further, the court refused to rewrite the parties' agreement and strike the offensive language. In other words, the court refused to adopt a policy of "severability of employee covenants not to compete." Additionally, the court argues that "[w]hen courts adopt severability of covenants not to compete, employee competition will be deterred even more than it is at present by these overly broad covenants against competition."
Discussion. This case offers a comprehensive look at how courts construe covenants not to compete. It is also interesting to compare this case to [Karpinski v. Ingrasci].