Moore v. Midwest Distribution - 76 Ark. App. 397, 65 S.W.3d 490 (2002)

Rule:

Covenants not to compete will not be enforced unless a covenantee had a legitimate interest to be protected by such an agreement, and the law will not enforce a contract merely to prohibit ordinary competition. The test of reasonableness of contracts in restraint of trade is that the restraint imposed upon one party must not be greater than is reasonably necessary for the protection of the other and not so great as to injure a public interest. Where a covenant not to compete grows out of an employment relationship, an interest sufficient to warrant enforcement of the covenant is found only in those cases where the covenantee provided special training, or made available trade secrets, confidential business information or customer lists, and then only if it is found that the covenantee was able to use information so obtained to gain an unfair competitive advantage.

Facts:

Appellee, Midwest Distribution, Inc., was in the business of setting up product displays, principally cigarette displays, as a contractor for a company known as Hubb Group or HGDS. Appellant Ronnie Moore signed a “Service Work for Hire Agreement” effective February 1, 2001, with appellee. The agreement contained a covenant not to compete. Appellant terminated his employment with appellee and went to work for Jay Godwin. Appellant was doing the same work for Godwin as he did for appellee. Appellee brought a petition for temporary and permanent injunction and damages, seeking to enjoin appellant from providing services to Godwin. The trial court granted appellee a temporary injunction. Appellant brought the present appeal. 

Issue:

Should appellant be enjoined from providing services to Godwin, pursuant to the non-compete clause in the parties’ agreement? 

Answer:

No.

Conclusion:

The appellate court held that because the appellant had been provided with no special training, trade secrets, confidential business information, or customer lists, the appellee had no interest which it could legitimately seek to protect with a covenant not to compete. The court further held that the geographical limitation imposed on the appellant prevented him from working in a state in which he had never worked, and, as such, more broadly limited the appellant's working than was reasonably necessary to protect the appellee's trade area. The court concluded that the appellee showed no likelihood of success on the merits, so it was error to grant a preliminary injunction.