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Cut N Up Hair Salon of Carolina Beach, LLC v. Bennett - 236 N.C. App. 506, 765 S.E.2d 556 (2014)

Rule:

A non-competition covenant is valid and enforceable when it is (1) in writing; (2) reasonable as to terms, time, and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) not against public policy. What constitutes a "legitimate interest" is a question of law for the court. Since the determinative question is one of public policy, the reasonableness and validity of the contract is a question for the court and not for the jury, to be determined from the contract itself and admitted or proven facts relevant to the decision.

Facts:

Plaintiffs Lewis and Cut N Up filed suit against defendant Bennetts, seeking damages for violation of restrictive covenants as stated in the purchase agreement which prohibits defendants from engaging in a competitive business for a period of five years and within a 50-mile radius from the former. The suit came after defendants operated a home-based salon approximately two miles from Cut N Up Hair Salon. The trial court issued a TRO in favor of the plaintiffs. The trial court then issued a consent order allowing the defendants to operate the home-based salon subject to certain restrictions. Plaintiffs sought to dissolve the consent order, which was subsequently granted. In addition to awarding damages to plaintiffs, the trial court also permanently enjoined defendants from operating the home-based salon until the restrictive covenants were set to expire in 2015. Defendants appealed. They argued that the trial court erred in granting partial summary judgment to plaintiffs and imposing the permanent injunction because (1) the restrictive covenants were unenforceable as a matter of law or, in the alternative, (2) the case involved disputed issues of material fact. 

Issue:

Did the restrictive covenant or geographic limitation in the hair salon purchase agreement between the parties exceed purchaser plaintiffs' legitimate business interests, as contended by defendants, who subsequently operated an in-home salon located nearby plaintiffs' salon?

Answer:

No

Conclusion:

The Court of Appeals of North Carolina affirmed the trial court’s order granting partial summary judgment. The Court found that the defendants offered no evidence that plaintiff’s customer base failed to include the entire area encompassed by the 50-mile restriction. Therefore, the undisputed evidence was that plaintiff's customer base covered the full area described in the restrictive covenants. As a result, the parties' forecast of evidence indicated that plaintiff was engaged in business in the area proscribed by the restrictive covenants. Therefore, the geographic limitation was reasonably necessary to protect plaintiffs' business interests. In reaching this decision, the Court looked to a five-factor test to determine whether a non-competition contract is valid and enforceable.  

 

Next, the Court reviewed the appeal from summary judgment de novo. Summary judgment is appropriate only when the record shows that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law. In this case, the issue was a matter of contract interpretation and, thus, a question of law. The trial court's order granting summary judgment was affirmed.

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