Wolfington Body Co. v. O'Neill - 190 A.3d 754 (Pa. Super. Ct. 2018)

Rule:

Pennsylvania courts have historically been reluctant to enforce contracts that place restraints on trade or on the ability of an individual to earn a living; however, post-employment non-competition covenants are not per se unreasonable or unenforceable." At a minimum, for a non-competition or restrictive covenant to be enforceable, it must be reasonably related to the protection of a legitimate business interest. The type of interests that have been recognized in the context of a non-competition covenant include trade secrets or confidential information, unique or extraordinary skills, customer good will, and investments in an employee specialized training program. In contrast, a post-employment covenant that merely seeks to eliminate competition per se to give the employer an economic advantage is generally not enforceable. The presence of a legitimate, protectable business interest is a threshold requirement for an enforceable restrictive covenant.

Facts:

Wolfington is a bus sales company that provides specialized transportation. In October 2013, Wolfington hired Mr. O'Neill as a commercial vehicle salesperson. On October 9, 2013, Mr. O'Neill executed an employment agreement ("Employment Agreement"), which contained several restrictive covenants specifically non-compete, non-solicitation, and non-disclosure clauses. On October 24, 2016, Mr. O'Neill submitted a letter of resignation to Wolfington. During an exit interview, Wolfington reminded Mr. O'Neill of the restrictive covenants contained in the Employment Agreement. In early November 2016, Mr. O'Neill began employment with Grech, a bus manufacturer for the high-end luxury market, as a Senior Sales Executive. On November 17, 2016, Wolfington filed a complaint with a prayer for injunction against Mr. O'Neill and Grech, claiming Mr. O'Neill was in violation of the restrictive covenants contained in his Employment Agreement because Grech was a competitor of Wolfington. The court denied Wolfington's petition for injunctive relief.

Issue:

Does Wolfington have a legitimate, protectable business interest, thereby making its restrictive covenants valid?

Answer:

No.

Conclusion:

Quoting the trial court’s decision, the court agreed that Wolfington failed to establish a protectable legitimate business interest. The skills and information necessary to enable an experienced salesperson such as [Mr.] O'Neill are readily available in the public domain. Such information includes names and addresses of customers or potential customers of commercial transportation vehicles and competitive pricing of these products. There was no information that amounts to an actual secret, was of peculiar importance to Wolfington, or constituted a competitive value; rather, the information was common knowledge throughout the industry. Further, the definition of "Confidential Information" as set forth in the Employment Agreement was so broad as to include any information O'Neill may have learned during his employment with Wolfington. There was no plausible way to distinguish such knowledge and information one acquires with experience and that which amounts to true confidential information deserving of protection. As set forth in more detail below, the restrictive covenants were not reasonably tailored to protect Wolfington's business interests. The Agreement's definition of "Confidential Information" was excessively broad and effectively prohibited O'Neill from engaging in his chosen profession. As a result, the customer lists, costs and pricing margins, and marketing strategies are neither protectable as trade secrets nor do they amount to actual confidential information. 

Further, The non-compete covenant restricts O'Neill from directly or indirectly, on his own behalf or in the service or on behalf of others engaging in any activity in competition with any of the activities carried on by Wolfington (or any affiliate) in any state within the United States in which Wolfington (or any affiliate thereof) conducts any business or have conducted any business. Evidence at the hearing showed that O'Neill was responsible for the territory of New York south through Maryland and New Jersey, west through Delaware and Eastern Pennsylvania. Thus, the restriction does not apply merely to O'Neill's former sales territory (PA, DE, NJ, NY, MD), but to any state in which Wolfington has ever done business. The effect of this clause is significantly more broad and drastic than would initially appear. At the hearing, testimony revealed that Wolfington, as one of the largest bus dealers in the country, has done business in 35 states. Because this geographic restraint far exceeds the scope of O'Neill's sales territory at Wolfington, it is unreasonable under the law.