Merrimack Valley Wood Prods. v. Near - 152 N.H. 192, 876 A.2d 757 (2005)

Rule:

To determine the reasonableness of a restrictive covenant ancillary to an employment contract, the Supreme Court of New Hampshire employs a three-pronged test: first, whether the restriction is greater than necessary to protect the legitimate interests of the employer; second, whether the restriction imposes an undue hardship upon the employee; and third, whether the restriction is injurious to the public interest. If any of these questions is answered in the affirmative, the restriction in question is unreasonable and unenforceable.

Facts:

The plaintiff employers did not tell the defendant sales representative about the restrictive covenant until after he had worked for them for six months, at which time, he was in no position to refuse his assent and face the loss of his job. After defendant went to work for a competitor, the plaintiff employers sought an injunction to enforce the covenant. The trial court ruled in favor of the defendant, holding that the restrictive covenant was unenforceable. The court found that, because the non-compete covenant applied to all of the plaintiffs' customers, regardless of whether the defendant had any contact with them, it was broader than necessary to protect the plaintiffs' legitimate interest in protecting their goodwill. The trial court also denied the plaintiff’s motion to reform the covenant. Plaintiffs appealed, arguing that: (1) the covenant not to compete was reasonable, and therefore was enforceable; (2) even if the covenant was unreasonable, it was executed in good faith and, therefore, the trial court should have reformed it.

Issue:

1. Was the covenant not to compete reasonable, and therefore, enforceable? 
2. Should the trial court have reformed the covenant? 

Answer:

1) No. 2) No.

Conclusion:

The supreme court agreed with the trial court's eventual determination, after a merits hearing, that the agreement was impermissibly broad in precluding the representative from contacting even those customers with whom he had never had contact. Moreover, the circumstances of the covenant's execution did not suggest the type of employer good faith that would support reformation of the covenant.