MISCELLANEOUS DEFENSES: ILLEGALITY, DURESS, MISREPRESENTATION, UNCONSCIONABILITY, AND LACK OF CAPACITY

Example: D, who has recently completed her education as a veterinarian, goes to work for P, a pet clinic in Laramie, Wyoming. A few months after D starts to work for P, D and P sign an employment/non-compete agreement that provides that: (1) either party may terminate the employment on 30 days notice to the other; and (2) upon termination, D “will not practice small animal medicine for a period of three years from the date of termination within 5 miles of the corporate limits of the City of Laramie.” Two years later, D begins negotiating to buy a competing practice, P fires her because of this, D buys the practice and starts competing, and P sues on the non-compete.

Held, the non-compete here is partially enforceable. When D first moved to Laramie and began work for P, D had no significant professional contact with the Laramie community. The introduction that P gave to D of P’s “clients, client files, pricing policies, and practice development techniques provided information which exceeded the skills [D] brought to her employment.” This exposure to clients and knowledge “had a monetary value for which [P is] entitled to reasonable protection from irreparable harm.” The fact that P proved at trial that D successfully recruited 187 of P’s clients to D’s new practice shows that P suffered actual harm from D’s unfair competition.

The subject-matter scope of the non-compete here was reasonable: the limitation of the non-compete to “small animal medicine” meant that while D could not care for domesticated dogs and cats and other household pets, she could still care for large animals, a significant area of practice in Wyoming. Nor was the five-mile radius unreasonable, since it allowed D to set up a practice in other parts of the county. However, the three-year duration was unreasonable as a matter of law, and should be replaced by a one-year limit. Hopper v. All Pet Animal Clinic, 861 P.2d 531 (Wy. 1993).

c. Divisibility: If the covenant not to compete, as written, is overly broad, most modern courts will enforce it up to reasonable limits. See Rest. 2d, § 183, Comment a and § 184, Comment b.

i. Traditional rule: Some courts still follow the more traditional rule that an unreasonably broad contract should not be enforced at all.

ii. “Blue pencil” rule: Other courts follow the “blue pencil” rule. Under this rule, the unreasonably broad contract will be enforced only if a hypothetical “blue pencil” could be drawn through certain portions of the agreement, leaving other portions intact to be enforced.

Example: To see how this blue-pencil rule would work, suppose the covenant in Hopper, supra, had said that D would not care for “cats, dogs, horses or cows.” If the court decided that the limitation as to cats and dogs was reasonable but that the limit as to horses and cows was not, under the blue-pencil rule the court would be permitted to draw a metaphorical line through the words “horses or cows,” leaving the prohibition in place as to cats and dogs. On the other hand, the court would not have been permitted to change the three-year duration to one year, because this would require replacement of words, not mere deletion of them.