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Data Mgmt. v. Greene - 757 P.2d 62 (Alaska 1988)

Rule:

If an overbroad covenant not to compete can be reasonably altered to render it enforceable, then the court shall do so unless it determines the covenant was not drafted in good faith. The burden of proving that the covenant was drafted in good faith is on the employer.

Facts:

Data Management, Inc. employed James H. Greene and Richard Van Camp. The parties signed a contract containing a covenant not to compete. The covenant provided that the employees will not compete with Data Management in Alaska for five years after termination. Shortly after the employees' termination from Data Management, the company filed suit against them for breach of the covenant not to compete. Data Management sought a preliminary injunction enjoining Greene and Van Camp from rendering computing services to 21 named individuals. The preliminary injunction was granted. Subsequently, the court granted summary judgment to Greene and Van Camp. The court found that the anti-competition covenant was not severable and was wholly unenforceable. Data Management appealed.

Issue:

Was the trial court correct in holding that the anti-competition covenant was wholly unenforceable?

Answer:

No.

Conclusion:

The Court adopted the rule of reasonableness for determining the enforceability of a covenant not to compete. This rule contained a good faith element on the part of the employer to prevent overreaching. Accordingly, the Court reversed and remanded since the trial court failed to determine whether appellant acted in good faith in drafting the overbroad covenant not to compete, without which finding the trial court could not determine whether covenant could be reasonably altered or amended.

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