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There are three considerations used to test the validity of a covenant not to compete. In determining whether a covenant not to compete is valid, a court considers whether the restriction is (1) reasonable in the sense that it is not injurious to the public; (2) not greater than is reasonably necessary to protect the employer in some legitimate interest; and (3) not unduly harsh and oppressive on the employee. It is often best to consider the second feature identified above and initially determine if the restraint is in aid of some legitimate interest of the employer.
Jason Gaver, the appellee, was employed by Schneider's O.K. Tire Co. (Schneider's), the appellant, on two separate occasions, and on each occasion, Gaver signed a noncompete agreement. After Gaver's second employment relationship with Schneider's ended on July 23, 2012, he filed his amended complaint in the district court or Platte County seeking a declaratory judgment that the noncompete agreements were unenforceable. After a bench trial, the district court filed an order in which it determined that the scope of the noncompete agreements was greater than reasonably necessary to protect Schneider's against unfair competition and that therefore, the noncompete agreements were unreasonable and unenforceable. The district court entered declaratory judgment in favor of Gaver and against Schneider's. Schneider's appealed.
Were the non-compete agreements in question invalid, thereby warranting the grant of declaratory judgment in favor of the employee?
The Court held that a declaratory judgment entered in favor of the employee was proper because the scope of the noncompete agreements was greater than reasonably necessary to protect the employer against unfair competition and thus, the noncompete agreements were unreasonable and unenforceable. Moreover, the Court noted that the employer failed to show any special circumstances affecting a legitimate business interest to be protected by the noncompete agreement, and there was no evidence that the employee had any personal and business-based contact with customers or prospective customers of the employer. According to the Court, by attempting to restrict the employee from opening or having an ownership interest in a competing business not coupled with a recognized protectable interest, the employer was attempting to prevent ordinary competition by a former employee, not unfair competition.