The general rule applied in construing noncompetition agreements, is that restrictions therein are upheld, if they meet the test of showing that they are not greater than are reasonably necessary to protect the business or good will of the employer, even though they restrain the employee of his liberty to engage in a certain occupation or business, and deprive the public of the services, or restrain trade.
Plaintiff was a master horseshoer and employed the defendant as an apprentice. Defendant later left the job under a noncompete agreement; he agreed to not work in competition with the plaintiff within 100 miles from plaintiff’s place of business for five years. Defendant immediately opened his own horseshoeing business a few miles away, resulting in a significant loss of customers to the plaintiff. The lower court dismissed the case, finding that the area restriction was unreasonable. On appeal, the court hear four issues: (1) is the restrictive noncompete term void for reasons of public policy? (2) if not void, is the covenant supported by consideration? (3) if it is supported, was the restriction reasonable as to both parties and the public? (4) if it was not reasonable, can a court modify the restriction and enforce it in a more reasonable manner.
Did the lower court err in dismissing the case?
Yes, the appellate court reversed and remanded the case.
The court stated that the general rule in restrictions is that they are upheld if they meet a reasonability test. Here, the restrictions were not void for reasons of public policy. Further, it held that though the contract was poorly constructed, the terms were supported by adequate consideration. The defendant promised not to compete in exchange for the plaintiff teaching him the skills. Next, the lower court correctly found that the area restriction in the contract was unreasonable, and that it was correct to refuse to enforce this restriction as written. Thus, the court reversed and remanded to determine more reasonable restrictions as to area and time.