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Tech. Aid Corp. v. Allen - 134 N.H. 1, 591 A.2d 262 (1991)

Rule:

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

Facts:

Sherman John Allen, Jr. signed an employment contract with plaintiff, Technical Aid Corporation. The employment contract contained various restrictive covenants. Allen soon thereafter decided to leave Technical Aid. Together with another employee, who had previously left the employ of technical Aid, Allen took steps towards forming E & S, a new Hampshire corporation, and entering the temporary personnel business. Allen then worked for E & S, participating only in management. He did not solicit or service customers. Subsequently, Technical Aid filed a petition for a temporary restraining order, preliminary and permanent injunction, and damages. A restraining order was issued against Allen, enjoining him from soliciting, diverting or otherwise contacting any of sixty listed client companies of Technical Aid. The injunction was subsequently dissolved. The district court dismissed Technical Aid’s petition against its former employees. Technical Aid sought review of the decision. 

Issue:

Was the former employee guilty of violating the restrictive covenants in his employment contract? 

Answer:

Yes, in part.

Conclusion:

The court found that paragraph seven of the covenant against competition was unreasonable and unenforceable as written because the geographic limitation was greater than necessary to protect the legitimate interests of the personnel company, and it imposed an undue hardship on the employee. It prohibited the employee from engaging in competition beyond his assigned sales territory. The court was unable to conclude that paragraph eight imposed a disproportionate hardship on the employee because the covenant was found to be reasonable and, in itself, enforceable. Further, paragraph six was found to be reasonable and enforceable because it prohibited the employee from engaging in activity competitive to the employer while employed. In addition, the court held that the employee violated paragraph eight of the contract because he competed for and successfully diverted business from the company.

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