Lead Opinion
OPINION
Case Summary
Steven E. Coates (“Coates”) appeals from the trial court’s grant of a preliminary injunction against him and in favor of Heat Wagons, Inc., (“Heat Wagon”) and Manufacturers Products, Inc. (“Manufacturers Products”) (collectively, “MPI”).
We affirm in part and reverse in part.
Issues
Coates presents numerous issues, which we reframe and restate as whether the trial court abused its discretion in granting a preliminary injunction against him because
1. There is no risk of irreparable harm to PHP from Coates’s continued operation of his business that would entitle PHP to a preliminary injunction, and prospective legal remedies will suffice to protect MPI’s interests;
2. MPI did not establish its likelihood of success on the merits of its claim against him because the covenant not to compete is unenforceable and MPI committed the first material breach of the underlying employment agreement; and
*910 3. The terms of the injunction are overly broad relative to the covenant it seeks to enforce.
Facts and Procedural History
Coates’s father, Harold Coates (“Harold”), was the majority shareholder in Heat Wagon and Manufacturers Products. Coates was a minority shareholder in Manufacturers Products. Manufacturers Products manufactures, sells, and leases large heaters in steel mills, portable heater units, heater parts, air conditioning systems, and other related goods. The portable heater parts division of Manufacturers Products is marketed separately as Portable Heater Parts or PHP (hereafter “PHP”) and accounts for approximately 70% of Manufacturers Products’ sales. Heat Wagon manufactures heaters and heater parts for large construction heaters, and sells the same types of products for other manufacturers.
Beginning in 1986, while still operating MPI, Harold started another business, Second Source. Second Source was also involved in the sale of portable heater parts. Harold’s father would order parts through Second Source and sell them to PHP.
In April 1996, Harold died. On May 31, 1996, all of the shares in Manufacturers Products and Heat Wagon — including Coates’s shares — were sold to John Walsh (“Walsh”) and John Barney (“Barney”). The new owners of MPI retained Coates as an employee, and on May 29, 1996, Coates signed the Employment Agreement (“Agreement”) at issue in this case.
Beginning in April 1996, when he knew MPI would be sold to Walsh and Barney, Coates began to operate Second Source under the name S&S Supply (“S&S”). In particular, Coates continued to sell parts to MPI through S&S when S&S could buy and sell the products to MPI for a lower price than MPI could purchase the same parts, even after S&S took a mark-up on the goods. Sales to MPI constituted $228,535.23 of S&S’s revenues from 1996 to 2009; sales to other customers in the same period amounted to only $3,030.00. (App.20.)
Coates hid his continued involvement in S&S from MPI. He did not inform MPI’s management that he was operating S&S. Coates used addresses not' directly connected to him to operate the business, including a friend’s address in Valparaiso as a mailing address and a UPS Store in Las Vegas, Nevada, as the address for S&S’s checking account. When products S&S sold to MPI arrived at MPI from S&S’s vendors, Coates would swap out the manufacturer’s packing slips and replace them with S&S packing slips so that his involvement in S&S would not be revealed.
On May 1, 2009, Walsh terminated Coates’s employment without cause. In March 2009, MPI ordered electric motors manufactured by Emerson Electric from S&S. After a computer irregularity with S&S’s record on MPI’s computers, an MPI employee located an Emerson Electric invoice associated with the order that showed S&S sharing its address with Coates’s personal residence. MPI investigated and in July 2009 discovered Coates’s role in S&S.
On July 20, 2009, MPI filed a complaint seeking to enjoin Coates from continued operation of Second Source/S&S, later amending the complaint to pursue damages for breach of contract. Coates answered and entered a counterclaim for declarative relief and compensatory damages.
On November 25, 2009, MPI filed its Verified Petition for Preliminary and Permanent Injunction. On April 12, 2010, after the parties filed stipulated facts and exhibits and a hearing, the trial court entered its Order Granting Preliminary Injunction (“the Order”) against Coates.
This appeal followed.
Discussion and Decision
I. Standard of Review
To obtain a preliminary injunction, the moving party must show by a preponderance of the evidence that: (1) its remedies at law are inadequate and that irreparable harm will occur during the pendency of the action as a result; (2) it has at least a reasonable likelihood of success on the merits by establishing a prima facie case; (3) the threatened harm it faces outweighs the potential harm the injunction would pose to the non-moving party; and (4) the public interest would not be
Trial Rule 65 sets forth the procedure governing injunctive relief. “Every order granting [a] temporary injunction ... shall include or be accompanied by findings as required by Rule 52.” Ind. Trial Rule 65(D). We review the special findings and conclusions required under Trial Rule 52 for clear error. T.R. 52(A).
Findings of fact are clearly erroneous when the record lacks evidence or reasonable inferences from the evidence to support them. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made. We consider the evidence only in the light most favorable to the judgment and construe findings together liberally in favor of the judgment.
Robert’s Hair Designers, Inc. v. Pearson,
II. Irreparable Haim
Coates contends that MPI does not face a risk of irreparable harm and does not lack an adequate remedy at law. Thus we first consider whether the trial court abused its discretion in determining that MPI may have suffered irreparable harm.
Irreparable harm is that harm which cannot be compensated for through damages upon resolution of the underlying action. Ind. Family & Soc. Svcs. Admin. v. Walgreen Co.,
Our decision in Robert’s Hair Designers is illustrative of the proper use of a preliminary injunction. In that case, we reversed a trial court’s denial of a preliminary injunction against former employees of a hair salon despite the salon’s ensuing increase in revenue. Robert’s Hair Designers,
Here, the trial court noted in its order that “there is no apparent way to measure the loss of sales to PHP, nor is there any way to measure the amount of business that has already been taken from PHP by Coates.” (Appellant’s App. 9.) Coates’s continued involvement in the sale of heater parts after his termination by MPI could constitute irreparable harm because of Coates’s knowledge of the portable heater market, his knowledge of vendors, and his recognition by both vendors and customers. Moreover, Coates’s competition poses a significant potential of future harm to MPI because each party would be in competition with the other for a limited supply of DESA parts as a result of that company’s 2008 closing. Coates’s competition with PHP holds a potentially unique risk of harm because of how well informed Coates was on DESA products as a result of his work for PHP.
III. Reasonable Likelihood of Success on the Merits
Coates argues that MPI did not establish by a preponderance of the evidence that it could produce evidence to establish a prima facie case for its claim. See Zim-mer,
A. Whether MPI had a Legitimate Interest
Indiana courts strongly disfavor as restraints of trade covenants not to compete in employment contracts. Central Ind. Podiatry, P.C. v. Krueger,
A legitimate protectable interest is an advantage possessed by an employer, the use of which by the employee after the end of the employment relationship would make it “unfair to allow the employee to compete with the former employer.” MacGill v. Reid,
Here, the trial court found that “Coates had retained his knowledge of the business and used that knowledge to acquire/retain customers that he had prior transactions with through PHP.” (Appellant’s App. 10.) The court held that these aspects of Coates’s knowledge, as well as the knowledge of customer requirements Coates obtained “through representative contact,” constituted a legitimate protecta-ble interest, as did MPI’s right to “restrict a former employee from enticing away the employer’s old customers.” (Appellant’s App. 10.)
We cannot say here that the trial court’s findings and conclusions were clearly erroneous. Among the facts to which both Coates and MPI stipulated was that Coates was involved in “price adjustments” for customer orders and that he played a significant role in identifying products for PHP to sell to its customers and carry in its catalog. (Appellant’s App. 18.) Coates and MPI further stipulated that “Coates is selling to customers to whom he sold when he was at PHP.” (Appellant’s App. 22.) Coates testified that he knew customer names and had handled sales calls when required to do so. Coates also testified that though he did not actively comb the American Rental Association (“ARA”) mailing list for PHP customers, neither did he attempt to filter out existing PHP customers from the ARA list he purchased.
The nature of the heater parts market in which PHP operates further illustrates a protectable interest. PHP was the primary supplier of DESA Master heaters and heater parts, a market which became much more competitive when DESA ceased operation in late 2008. PHP — at Coates’s urging — began to seek DESA heaters and parts in an effort to acquire additional market share and supply the substantial market for DESA parts. Coates’s knowledge of and familiarity with the DESA heater parts market, and the portable heater parts market in general, was a commercial advantage developed while he worked for PHP. We thus cannot agree with Coates that the trial court arrived at its findings of fact without supporting evidence.
Nor can we agree with Coates that the trial court erred as a matter of law in determining that these facts gave rise to a protectable interest. It is true that general skills and knowledge travel with an employee without being subject to restriction by a covenant not to compete. See, e.g., Pathfinder,
B. Scope of the Restrictions
Coates further contends that even if MPI had a legitimate interest capable of protection through a covenant not to compete, the scope of the restrictions the covenant imposes upon him is unreasonable and thus the covenant is void.
When reviewing the scope of restrictions in a covenant not to compete, we review the time, geography, and types of activity the covenant prohibits. Gleeson,
Geographic Scope
Whether the scope of a covenant’s geographic restrictions is reasonable depends upon the employer’s interest served by those restrictions. Krueger,
As a nearly-nationwide business, MPI has an interest in protecting its interests in each state in which it conducts business in the heater and heater parts market. Coates admitted, in the Stipulated Facts submitted to the trial court, to having had contact with customers or vendors in the nineteen states listed in the injunction. In each of the nineteen states, PHP had sales in excess of $20,000 per year in both 2008 and 2009, with some states seeing sales of nearly $500,000 in one or both years. Indeed, PHP had sales in all of the states listed in Exhibit A of the Employment Agreement, with many states seeing sales in excess of $20,000 in both 2008 and 2009. In light of Coates’s knowledge of and contact with PHP’s customers and vendors and his knowledge of PHP’s business — all acquired while Coates was an MPI employee — we cannot say that the trial court’s determination in its Order that the geographical provision of the non-compete “is reasonable and enforceable” was clearly erroneous. Cf. Dicen,
Nor did the trial court err in its use of the blue pencil doctrine to restrict the scope of the Order to the nineteen states in which Coates had customer contact. In Dicen, our supreme court held that use of the blue pencil doctrine to strike the geographical limitations of an employment agreement’s covenant not to compete whose geographical scope encompassed the entire United States would result in “no geographical limitation at all.” Id. The court therefore held the entirety of the covenant not to compete unenforceable. Id. Though the court in Smart Corp. v. Grider did approve a non-compete of similar scope (“any county of any state in the United States ... where the Company ... then carries on a like business”), it did so only because a portion of the covenant in question included a trailing phrase, “to the extent permitted by applicable law.”
Here, the trial court had before it a covenant not to compete that referred to a specific exhibit listing individual states, each of which could be stricken without resulting in the absence of any limitation of the geographical scope of the covenant. The listing of states in Exhibit A of the Employment Agreement is not at all like the “catch all” language in Grider which, much like the covenant in Dicen, sought to limit all activity by the restricted employee throughout the entirety of the United States without regard to the extent of the employer’s interest with respect to the employee. Compare id. at 84 n. 1, with Dicen,
Scope of Activities
We turn now to whether the scope of the restriction on Coates’s activities is unreasonable. The reasonability of a covenant not to compete’s restrictions on the activities of an employee is determined by the relationship between the interest the employer seeks to protect and the activities circumscribed by the provisions of the covenant. Provisions in a covenant not to compete are invalid if they prohibit competition with portions of a business with which an employee had no association or activities that are seemingly harmless in relation to the protected interest. MacGill,
The covenant at issue in this case restricts Coates from:
in any capacity whatsoever, either as an individual or as a partner or joint ven-turer, or as an employee, agent or representative for any person or business enterprise, or as an officer, director, shareholder (having more than a nominal investment) or otherwise, engag[ing] in competition with the Employer, or any of them, in the manufacture, marketing, leasing, distribution or sale of products in, or services related to, heaters or heating or air conditioning systems and related parts and components markets ...
(App.36.)
The Agreement identifies “Employer” collectively to include both Heat Wagon and MPI, the plaintiffs in this case. (App.34.) Coates contends that his “primary job responsibility was as a distributor of portable heaters, their parts and other items shown in its catalogue” (Appellant’s Br. 26.), that is, he worked primarily for PHP, a division of MPI. From this, argues Coates, come two corollaries. First, because he worked primarily for PHP dealing with portable heater parts, the inclusion of Heat Wagon in the definition of Employer is impermissibly broad because Heat Wagon deals with large construction heaters instead of portable heaters. Thus Coates urges that the term “Employer” must be blue penciled and, when this occurs, the covenant lacks meaning without an impermissible reinterpretation of the Agreement. Second, because
We are not persuaded by this argument. As to the interpretation of “Employer,” it is true that Coates’s pay came from MPI and not Heat Wagon. However, Coates stipulated that his Linked-In.com profile stated (and he thereby admitted) that
I purchase all items to fulfill sales obligations for our wholesale catalog company. Annual purchase of $3M +.
I also purchase 90% of the production parts for our sister company that manufactures large construction heaters.
(App. 18; emphasis added.) PHP is not a separate corporation, but is rather an unincorporated division of Manufacturers Products with no separate legal existence from it. PHP’s sister company is Manufacturers Products’ sister company — Heat Wagon. Heat Wagon manufactures large construction heaters.
Thus, the trial court could conclude from the evidence before it that Coates performed work for both Manufacturers Products/PHP and Heat Wagon, and inclusion of both companies within the definition of Employer did not require blue penciling. We acknowledge that covenants not to compete are interpreted to favor the employee, not the employer. Krueger,
Coates’s other attack — that the omission of “portable” from before “heaters” and “heating” is overly broad in relation to MPI’s protectable interest — fails for similar reasons. Coates worked for both Heat Wagon and Manufacturers Products, and Heat Wagon’s primary business was in the manufacture of larger commercial heaters. (Indeed, he purchased as much as 90% of the production parts for Heat Wagon). The omission of the term “portable” thus does not make the non-compete provision overbroad. Cf. MacGill,
We therefore conclude that the trial court’s interpretation and blue penciling of the scope provisions of the covenant not to compete was not clearly erroneous.
C. First Breach of the Employment Agreement
Coates next asserts that, even if the covenant not to compete applies to a legitimate protectable interest and is not over-broad in its restrictions, the covenant is nevertheless unenforceable because MPI committed the first material breach of the Employment Agreement by failing to pay the specified annual salary increases.
When one party to a contract commits the first material breach of that contract, it cannot seek to enforce the provisions of the contract against the other party if that other party breaches the contract at a later date. Licocci,
(a) The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;
*918 (b) The extent to which the injured party may be adequately compensated in damages for lack of complete performance;
(c) The extent to which the party failing to perform has already partly performed or made preparations for performance;
(d) The greater or less hardship on the party failing to perform in terminating the contract;
(e) The willful, negligent or innocent behavior of the party failing to perform;
(f) The greater or less uncertainty that the party failing to perform will perform the remainder of the contract.
Tomahawk Vill. Apartments v. Farren,
Here, Coates’s attack on the trial court’s determination that he, not MPI, committed the first material breach of the Employment Agreement takes three approaches. He first argues that MPI did not pay the minimum annual salary increase it promised to him in the Agreement, and that this constitutes MPI’s breach. He then argues that his activity through S&S was not prior to MPI’s breach because “[w]hether there is a breach depends solely on the language of the contract and not how distasteful the court or MPI’s officers think Coates’ [sic] conduct was.” (Appellant’s Br. 32-33.) Because the covenant not to compete contains no express prohibitions against Coates purchasing parts or selling goods to MPI, the argument goes, he has not breached the Agreement since it lacks a “prohibition of self dealing” that other such Agreements might have. (Appellant’s Br. 33.)
Stated another way, Coates seeks to escape the requirements of good faith and fair dealing in an employment agreement that “formalized the employment relationship” between himself and MPI “beyond the normal employment at will situation.” Weiser v. Godby Bros., Inc.,
Here, Coates sold parts to MPI through his own company, S&S, through which he continued a pattern of sales that his father had engaged in when his father was the majority shareholder of MPI. Coates began to sell parts to MPI when he knew the company was about to be sold to new owners, intending not only to draw wages from his employment but also to profit from sales he made through S&S. Coates did not disclose this arrangement to MPI’s new owners at the time he entered into the Employment Agreement or at any time
Coates seeks to excuse this conduct by noting that he did this only with parts that S&S could acquire at a lower price than MPI, thereby helping MPI pay less for the same products. Coates did not, however, introduce evidence as to why he could not — nor why he should not — have attempted, as an employee of MPI, to obtain those prices directly for his employer, thereby saving both the cost of the goods and the markup he assessed in selling the goods to MPI himself. Coates also used business addresses other than his own residence — including an address in Nevada for S&S’s checking account — with the purpose of hiding his involvement in the business from other MPI employees, stating that his involvement with S&S was “none of their business.” (Tr. 23.)
We note that Coates did not have a strictly traditional at-will employment contract with MPI, in that he was afforded certain financial protections in the event of discharge from employment without cause. MPI’s ability to dismiss Coates without cause and Coates’s ability to leave employment with MPI, each without breaching the Agreement, does not so muddy the waters as to relieve Coates of the duties imposed upon employees in at-will contracts or employment contracts in general. Cf. Weiser,
The trial court could reasonably conclude from the evidence before it that Coates breached the implied covenants of good faith and fair dealing imposed upon him by his employment with MPI before MPI failed to issue him pay raises in compliance with the terms of the Employment Agreement. Indeed, Coates likely breached these covenants almost as soon as he entered into the Agreement. The trial court’s holding that Coates made the first material breach of the Agreement and that MPI could therefore enforce the covenant not to compete was not clearly erroneous.
TV. Provisions of the Order
In various parts of his argument, Coates challenges the text of the Order itself, arguing that the injunctive provisions of the Order impermissibly reinterpret and expand the scope of the covenant not to compete. Coates assigns error to the court’s instruction that “Defendants, Coates and Second Source, shall refrain from contacting current and former customers and vendors of the Plaintiffs and shall not accept solicitation or contact from Plaintiffs’ current and former customers immediately with regards to heaters or heater parts.” (App.14.) This provision of the Order is impermissibly broad, Coates explains, because
it would be a violation for [him] to shop at his hometown Walmart where PHP would occasionally purchase products. It would prohibit having contact, even when not targeted at a former customer*920 (or vendor) from any information or recollection from the prior employment for the sale or purchase of non-heater and heater part items [sic]. Instead of. a precise rifle approach, hand grenade [sic] is employed by the court.
(Appellant’s Br. 28.)
Setting aside our concerns about the opacity of the second sentence in this quote, we recognize that the language of the trial court’s order could have been crafted with more precision. However, exercising common sense and reading the Order to avoid an absurd result yields an interpretation of the Order that requires Coates to “immediately, with regard to heaters or heater parts, 1) refrain from contacting current and former customers and vendors of the Plaintiffs, and 2) not accept solicitation or contact from Plaintiffs’ current and former customers.” Read this way, we believe the trial court’s order is not overbroad and does not impose restrictions impermissibly beyond the scope of the underlying covenant not to compete the Order seeks to enforce. This interpretation comports with subpara-graph (a)(ii) of the covenant regarding the use of customer information and PHP’s marketing strategies, the validity of which covenant Coates does not challenge. We therefore conclude that the trial court’s imposition of this provision of the preliminary injunction does not constitute an abuse its discretion.
Coates also argues that the trial court’s order is in error when it requires him to
Stop using the marks “H&P” and/or “Heaters and Parts” for any portion of either’s [Coates or Second Source] business. Coates and Second Source, as well as their employees or agents, shall stop using the website tvww.heaters andparts.com, and ... stop using the marks “H&P” and/or “Heaters and Parts” on any website or other publication or advertisement. Steps to cease using the marks must be taken immediately.
(App. 14; emphasis in original.) Specifically, Coates argues that the trial court had no evidence and made no findings regarding confusion or dilution as a result of his use of the various marks and Web addresses. MPI argues that the trial court’s order on these points need not be supported by specific findings and is reasonable in light of the purpose and provisions of the order that seek to restrict Coates’s unfair competition with MPI.
The trial court had some evidence before it in the form of stipulated facts and exhibits that allowed it to compare Coates’s and PHP’s use of each one’s marks. Coates’s company, S&S, used the Web site www. heatersandparts.com and a red “H&P” mark on that Web site and on printed materials. PHP used a red “PHP” mark and the Web site www.portableheater parts. Coates solicited and carried on business with some of PHP’s customers, operating in the same commercial organization (the ARA) as PHP.
However, we agree with Coates that the trial court’s order enjoining any use by Coates of www.heatersandparts. com and the red “H&P” mark is an abuse of discretion. There was no evidence that Coates’s use of the Web site or the mark created any confusion among its current or potential customers, nor did the trial court make specific findings of confusion as required under Trial Rule 52. We note further that because neither Coates nor PHP asserted any claims or defenses under trademark law, whether Coates’s use of the Web site and mark were confusing is likely more properly heard in Federal court under . the Lanham Act. See 15 U.S.C. § 1051 et seq. Finally, the relief granted by the trial court in its order is overly broad in relation to the otherwise
The absence of restrictions upon Coates’s use of the Web address and mark does not prevent PHP from enforcing its rights to restrict Coates’s sales to customers within the nineteen states encompassed by the injunction. Any sale by Coates to such customers would constitute an actionable violation of the injunction regardless of the channel through which the sale was conducted. Because of the over-breadth of the trial court’s order, we cannot agree with PHP that it was within the trial court’s discretion to enjoin Coates’s use of the www.heatersandparts. com Web address and red “H&P” mark.
Conclusion
The trial court did not err in determining that MPI faced a risk of irreparable harm and lacked adequate remedy at law as a result of any breach by Coates of the covenant not to compete. It also did not err in determining that MPI has a reasonable likelihood of success on the merits of its case. Finally, the restrictions imposed by the preliminary injunction upon Coates’s use of the Web address www. heatersandparts.com and the red “H&P” logo are overly broad.
Affirmed in part, reversed in part.
Notes
. The Employment Agreement Coates signed designated both Heat Wagon and Manufacturers Products collectively as Coates's employer. It also included provision for regular increases in pay for Coates, set at a minimum of $2160.00 per year. The Agreement also included a covenant not to compete, with the provisions relevant to this case stating:
9. Non-Competition by the Employee, (a) The parties acknowledge that the Employee has gained and will continue to gain considerable confidential information about the businesses of the Employer, which could be injurious to the Employer if the Employee were to use such information for his own benefit. Therefore, the Employee agrees that during the term of his employment hereunder, and for a period of two (2) years after the effective date of the termination of the Employee’s employment hereunder, the Employee shall not, directly or indirectly:
(i) in any capacity whatsoever, either as an individual or as a partner or joint venturer, or as an employee, agent or representative for any person or business enterprise, or as an officer, director, shareholder (having more than a nominal investment) or otherwise, engage in competition with the Employer, or any of them, in the manufacture, marketing, leasing, distribution or sale of products in, or services related to, heaters or heating or air conditioning systems and related parts and components markets in any of the states listed on Exhibit A, attached hereto;
(ii) disclose, divulge, discuss, copy or otherwise use or exploit or attempt to use or exploit in any manner in competition with or contrary to the interests of the Employer any customer lists or records, methods, business and marketing plans and strategies, financial information or any other trade secrets or proprietary information of any of the Employer, it being acknowledged by the Employee that all such information regarding the business of the Employer is confidential information the exclusive property of the Employer. Upon termination of his employment hereunder, the employee will promptly return the Employer all documents and records (in whatever form or medium) containing confidential or proprietary information of the Employer, including copies thereof then in the Employee’s possession or control, whether prepared by him or others; or
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(b) The Employee acknowledges that compliance with this section 9 is necessary to protect the goodwill and other proprietary interests of the Employer, and a breach will result in irreparable and continuing dam*911 age to the Employer for which there will be no adequate remedy at law. In the event of any breach by the Employee of the covenants contained herein, the Employer will be entitled to injunctive and other such relief, including the award of damages, as may be proper.
(App. 36-37; emphasis in original.)
. Coates also argues that the trial court’s order is defective for lack of significant evidence to support its injunction against Coates’s use of certain trade names. Because this claim relates to the scope of the order rather than the elements of the underlying claim, we address this issue with Coates's other challenges to the scope of the injunction. See infra.
. The states listed by the Order are Illinois, Indiana, Kansas, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New York, New Jersey, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, West Virginia, and Wisconsin.
. As an example, Coates stipulated that S&S charged MPI $165 per electric motor when Emerson Electric charged S&S only $65 per motor. Thus Coates acting through S&S while simultaneously employed by MPI imposed a markup of $100 per motor on a transaction involving 95 motors. (App.20-21.) S&S paid Emerson Electric $6,045.00, and received $14,374.00 from MPI after a prompt payment discount, resulting in a gross profit of $8,329.00 for S&S.
Dissenting Opinion
dissenting.
I respectfully dissent.
Covenants not to compete in employment contracts are in restraint of trade and have long been disfavored in the law. See Donahue v. Permacel Tape Corp.,
The covenant provides:
... Employee shall not, directly or indirectly:
(i) in any capacity whatsoever, either as an individual or as a partner or joint venture, or as an employee or agent or representative for any person or business enterprise or as an officer, director, shareholder (having more than a nominal investment) or otherwise engage in competition with the Employer, or any of them, in the manufacture, marketing, leasing, distribution, or sale of products in, or services related to, heaters or heating or air conditioning systems and related parts and components markets in any of the states listed on Exhibit A attached hereto.
Appellant’s App. at 36 (emphasis added).
The purpose of the covenant here at issue is not to protect the employer’s trade or business secrets. Rather, its purpose is solely to prevent competition by restricting the employee from engaging in competition with employer “in any capacity whatsoever” and would prevent the employee from competing in any way with the employer. Included in the prohibited actions is owning stock in any company engaged in the heating and air conditioning business. This would include owning stock as an
In regard to geographic scope, the restriction applied to all states in which the employer does or has done business, without regard to whether the employee has ever had any involvement in such states. While the trial court invoked the blue pencil doctrine to exclude thirteen of the thirty-two states listed on the exhibit because the employee had had no contact with businesses in such states, there was no showing of the extent of employees involvement in the remaining states.
I also question the re-writing of a contract as a matter of policy. A restrictive covenant in an employment contract is to be strictly construed against the employer. See Central Ind. Podiatry, P.C v. Krueger,
I believe that the restrictive covenant is unenforceable in its entirety. I would reverse the trial court and remand with instructions to dissolve the preliminary injunction.