51 S.E.2d 669 | Ga. | 1949
The employment contract, which formed the basis of the plaintiff's complaint, was void and unenforceable because contrary to public policy, being unreasonable as to territorial limitations contained in a restrictive covenant, and otherwise unreasonable. Accordingly, the trial court erred in granting an injunction, enjoining the employee in certain particulars, and in sustaining a demurrer to that portion of the answer which set forth the defense that the contract was contrary to public policy.
"7. Said employee hereby expressly covenants and agrees, which covenant and agreement is of the essence of this contract, that at no time during the term of this agreement or for a period of one (1) year immediately following the termination of this employment (regardless of whether said termination of this employment is voluntary or involuntary) will he for himself, or in behalf of any other person, persons, firm, partnership, company or corporation call upon any customer or customers, any exterminating, fumigating or termite control service for the purpose of eradicating rats, mice, roaches, bugs, vermin, termites, beetles, and other insects; nor will he in any way, directly or indirectly, for himself or in behalf of, or in conjunction with divert or take away any such customers of the said company during the term of this employment, or for one (1) year immediately following the termination of this agreement.
"8. Said employee further covenants and agrees that at no time during the term of this employment, or for one (1) year *796 immediately following the termination of this employment (regardless of whether such termination is voluntary or involuntary), will he for himself, or in behalf of any other person, persons, partnership, corporation or company engage in the pest control business or any business engaged in the eradication and control of rats, mice, roaches, bugs, vermin, termites, beetles and other insects within the territory known as cities of Macon, Georgia, Dublin, Milledgeville, Perry, Jeffersonville, Forsyth, Barnesville, Georgia, and a 75-mile radius of each of these said cities; nor will he directly or indirectly for himself, or in behalf of or in conjunction with any other person, persons, partnership, corporation or company, solicit, or attempt to solicit the business or patronage of any person, persons, firm, corporation, company or partnership within the said territory for the purpose of selling a service for the eradication and/or control of rats, mice, roaches, bugs, and service now engaged in by the company, nor will the said employee disclose to any person whatsoever any of the secrets, methods or systems used by the company in and about its business.
"9. Said employee further covenants and agrees that he will not, during the term of this employment nor for one (1) year immediately following the termination of this employment (regardless of whether said termination of this said employment is voluntary or involuntary), service contracts and accounts and/or work in the territory known as cities of Macon, Georgia, Dublin, Milledgeville, Perry, Jeffersonville, Forsyth, Barnesville, Georgia, and a 75-mile radius of each of these said cities, for himself, or for any other person, persons, firm, company, partnership, or corporation, directly or indirectly, or in conjunction with any other person, persons, firm, company, partnership, or corporation, selling any kind of pest control service, or any service, items or products for the exterminating and/or control of rats, roaches, bugs, vermin, termites, beetles, and other insects and/or any other things, items and products now handled by or from time to time handled by the said company or any products incidental to the business of the company.
"10. It is mutually agreed and understood that the term of employment shall be for a period of not less than three months after this date, provided the employee faithfully performs his *797 duties in a manner in keeping with this agreement and the rules and regulations of the employer, after which time the said employment may be terminated by either party upon the giving of fifteen days' notice to the other."
The petition alleged: that the employment contract was entered into on January 6, 1947, and thereafter on May 3, 1948, the defendant resigned his position with the petitioner and, in violation of the provisions of the contract, immediately accepted employment with Wright Pest Control Company of Macon, Georgia, a concern engaged in the pest-control business within the territory embraced in the employment contract; that the defendant acquired, during his period of employment by the petitioner, various trade secrets and methods used in pest control, and had access to the list of customers serviced by the petitioner, and he is now directly engaged in soliciting orders, and attempting to obtain business, from the petitioner's customers in the territory embraced in the employment contract; that the breach of the covenants contained in the contract will cause irreparable damages to the petitioner, the amount of damages being difficult, if not impossible, of accurate computation; and that the petitioner is without a remedy at law.
The petition prayed that the defendant be temporarily and permanently restrained and enjoined for a period of one year, commencing May 3, 1948, from engaging in the pest-control business within the territory embraced in the employment contract, either in behalf of himself or as an agent or employee of Wright Pest Control Company, and from servicing contracts or accounts within the territory embraced in the contract, for himself or for any other person, firm, or corporation, in the selling of any kind of pest-control service or any service, items, or products for the extermination and control of rats, roaches, bugs, and other insects.
The defendant filed an answer which, together with amendments thereto, consists of more than eighty paragraphs. It would be impracticable to even summarize the allegations of the answer; but, briefly, the contentions as made by the answer were: (1) that the contract had been rescinded by mutual consent; (2) that the plaintiff perpetrated a fraud upon the United States and the Veterans Administration of the United States, *798 in that it did not inform the Veterans Administration that it was requiring employees, working for the plaintiff under the G. I. Bill of Rights (Servicemen's Readjustment Act), to enter into contracts which prevented the veteran-trainee from pursuing the trade for which he was being trained; (3) that the contract forming the basis of the suit is void because contrary to the public policy of the United States and of the State of Georgia, and because it tends to defeat the purposes of the act of Congress providing for on-the-job training for veterans; (4) that the contract is unenforceable because the words "of South Georgia" were added to the signature of Orkin Exterminating Company after the defendant signed the contract; (5) that the plaintiff represented to the defendant and to the authorities who approved the plaintiff as an institution for on-the-job training of veterans that the defendant would be given two years of training; that these representations were false, known to the plaintiff to be false, and were made for the purpose of deceiving the defendant and the authorities; and that the defendant, and other trainees, were actually given only about six days of instructions; (6) that the plaintiff cheated and defrauded its customers by requiring its employees to make inspections on the premises of its customers only once a month instead of twice a month as called for in the contracts entered into with its customers.
With respect to the third defense urged, the answer, in substance, alleged: that the contract upon which the plaintiff relies is contrary to law, contrary to the public policy of the State of Georgia, and is null and void; that the contract is in restraint of trade, and the terms of the contract are unreasonable and place an unreasonable burden upon the defendant, in that the contract provides that the defendant shall be deprived of his right to work and earn a living, except when working for the plaintiff; that the "territory stipulated in the contract wherein the defendant is deprived of the right to work and earn a living is far in excess of any necessity for the protection of the plaintiff"; that the defendant is a veteran of World War II and, as such, is entitled to the benefits provided by the Servicemen's Readjustment Act, public law No. 346; that among those benefits is the right to on-the-job training; that the plaintiff, in order to qualify as an institution to train veterans under the Servicemen's *799 Readjustment Act made application to the Georgia Department of Veterans Service and the Veterans Educational Council of Georgia, and represented to these agencies that a job would be available to veterans when training was completed; that upon such application the plaintiff was duly approved as an institution to train veterans; that the plaintiff offered to train the defendant under the provisions of this act, provided the defendant obtained the approval of the Veterans Administration; that the defendant applied for and obtained such approval, and under such approval the Veterans Administration paid the defendant the sums provided by law, and the plaintiff paid him sixty cents per hour for forty hours work and time and a half for overtime while he was training; that sometime prior to the time the defendant was accepted as a trainee, the plaintiff required him to sign the contract sought to be enforced; that the contract is contrary to the obligations of the plaintiff to the defendant as guaranteed by the Servicemen's Readjustment Act; that the contract entered into between the parties was, as a matter of law, subject to the acts of Congress relating to on-the-job training of veterans, and the contract is null, void, and unenforceable, and an unreasonable and arbitrary restraint upon the right of a veteran to earn a living at the occupation for which he has been trained; that the contract "defeats the very purpose of the laws of Congress providing for on-the-job training for veterans, and is therefore void."
On the interlocutory hearing, lengthy affidavits were offered by the plaintiff and the defendant. As to most of the issues, the evidence was conflicting. The plaintiff offered detailed evidence as to the secret methods and processes used by the company in conducting its business, and not known generally to the trade. The defendant offered evidence to the effect that none of the methods or processes of the company were secret but, on the contrary, were the same as those advertised in trade journals and discussed in trade letters sent to the general pest-control industry. It was disputed as to whether the employee received proper on-the-job training while in the employment of the plaintiff. It was further disputed as to whether the State agency which was charged with handling on-the-job training, in approving the application of the company for on-the-job training of veterans, *800 had knowledge of the fact that the company was requiring trainees to sign an employment contract similar to the one now sought to be enforced. An official of the company testified that he presented a copy of the contract to an official in the State agency, and was told that the agency was not concerned with such a contract, and notwithstanding the contract the company was approved. Officials of the State agency testified that they had no knowledge that such a contract was being required of veteran trainees, and there was evidence to the effect that, if this fact had been known, the agency would never have approved the company for on-the-job training of veterans.
Certain matters were not in dispute. It appeared that on December 12, 1946, pursuant to the provisions of the Servicemen's Readjustment Act, the company applied to the proper authorities for approval as an institution to give on-the-job training to veterans; that in this application the company represented that there was "reasonable certainty that the job for which the veteran is to be trained will be available to him at the end of the training period"; that this application was approved; that, subsequently, on or about January 6, 1947, the defendant applied to the plaintiff for on-the-job training under the provisions of the Servicemen's Readjustment Act; that the manager of the company at Macon, Georgia, told the defendant he would be hired for on-the-job training if he could get the approval of the Veterans Administration and if he would sign an employment contract; that the defendant accepted the job, went to work for the company, and made application for approval for on-the-job training, which application was later approved and made retroactive to the date he began working; that after the defendant had been working for several days the manager of the company presented to him the contract which now forms the basis of the suit, and the defendant signed the contract. The defendant worked for the company, receiving a salary therefor, and monthly subsistence from the Veterans Administration, until May 3, 1948, when he voluntarily resigned, and since resigning he has been employed by Wright Pest Control Company, a competitor of the plaintiff, engaged in the same type of business as the plaintiff. The defendant is working with Wright Pest Control Company as a veteran-trainee under the *801 Servicemen's Readjustment Act, continuing his training in pest-control work. Since beginning work for the latter company, the defendant has called on several customers formerly served by him while working with the plaintiff.
It was undisputed that the plaintiff does not conduct business in the entire territory covered by the contract. On this question, the vice-president of the company testified: "The territory served by the plaintiff corporation in the State of Georgia is that territory known as the cities of Macon, Dublin, Milledgeville, Perry, Jeffersonville, Forsyth, Barnesville, all in the State of Georgia, and a 75-mile radius of each of these said cities. Plaintiff corporation is not only authorized to do business in the aforesaid territory but continually does do business in practically all of the cities south of Atlanta, Georgia, and is authorized to do business in Atlanta, Georgia, but its business in Atlanta is very limited at the present time due to competitive features. There are some few cities south of Atlanta in which the plaintiff corporation at the present time does not engage in business, but the reason is that from a competitive angle at the present time it would not be profitable to operate in these cities. Affiant states that not only has the plaintiff corporation planned to go into every city in Georgia, when and as the opportunity avails itself, but it is the plan and distinct operating method of the plaintiff corporation to endeavor to operate profitably, and when and as conditions permit profitable operations in such other cities, the plaintiff corporation will definitely engage in business in said cities."
By stipulation it was agreed that the defendant, "while employed by the plaintiff, worked in Macon, Bibb County, Georgia, in Forsyth; Barnesville, Dublin, McRae, and Reynolds, Georgia."
After the introduction of evidence, the trial judge rendered a judgment temporarily restraining the defendant for a period of one year from May 3, 1948, from servicing contracts which the plaintiff held on May 3, 1948, or calling on persons who were customers of the plaintiff as of May 3, 1948, in Bibb County, Dublin, Barnesville, Forsyth, McRae, and Reynolds, Georgia, for himself or any other person, firm, or corporation directly or indirectly engaged in selling pest-control service or items and *802 products for the extermination of rats, roaches, etc., and from disclosing to any person the name of any customer of the plaintiff as of May 3, 1948.
By a direct bill of exceptions, the plaintiff excepted to this judgment, contending that the trial court erred in not enjoining the defendant, as prayed in the petition, in the entire territory covered by the contract. The defendant, by cross-bill, assigns error on the grant of the injunction, contending that no injunction at all should have been granted by the trial judge, and further assigns error on the judgment, rendered after the injunction was granted, sustaining demurrers to the answer, which stripped the answer of all defenses alleged, except the defense that the employment contract, upon which the action is based, had been rescinded by mutual consent. 1. The answer to one question controls this case. Was the employment contract entered into between the parties contrary to public policy?
Among the contracts that are stated to be unenforceable because "against the policy of the law" are "contracts in general restraint of trade." Code, § 20-504. While it is the general rule that a contract in general restraint of trade is void, a contract only in partial restraint may be upheld, "provided the restraint be reasonable," and the contract be valid in other essentials.Kutash v. Gluckman,
Whether the restraints imposed by an employment contract are reasonable is a question of law for determination by the court.Rakestraw v. Lanier,
In determining the reasonableness of a restrictive covenant, greater latitude is allowed in those covenants relating to the sale of a business, or dissolution of a partnership, than in those covenants ancillary to an employment contract. This distinction has been expressly recognized by our courts, and seems to accord with the weight of authority from other jurisdictions. 17 C. J. S., 636, § 254, states the general rule: "Restrictive covenants contained in a contract of hiring are tested by the same standard of reasonableness of the restraint as are similar covenants in a contract of sale, but covenants of the former sort are not viewed by the courts with the same indulgence, and a smaller scope of restraint is permitted." InRakestraw v. Lanier, supra, the court held: "A clear distinction must be taken between the class of cases binding one who has sold out a mercantile or other kind of business, and the good-will therewith connected, not to again engage in that business within a given territory, and that class of cases binding one to desist from the practice of a learned profession." The same distinction has been made between a contract involving the sale of a business or manufacturing enterprise and a contract of employment. In the former class of cases, the contract may be unlimited as to time and still be valid (Goodman v.Henderson,
Many reasons have been advanced for the broader latitude given to contracts of sale as distinguished from contracts of employment. In Hood v. Legg, supra, this court, quoting with *804 approval from 6 R. C. L. 793, § 197, said: "Public policy requires that every man shall be at liberty to work for himself, and shall not be at liberty to deprive himself or the State of his labor, skill, or talent by any contract that he enters into. On the other hand, public policy requires that when a man has by skill, or by any other means, obtained something which he wants to sell, he should be at liberty to sell it in the most advantageous way in the market; and in order to enable him to sell it advantageously in the market, it is necessary that he should be able to preclude himself from entering into competition with the purchaser. In such a case, the same public policy that enables him to do this does not restrain him from alienating that which he wants to alienate, and therefore enables him to enter into any stipulation which, in the judgment of the court, is not unreasonable, having regard to the subject-matter of the contract. There are several reasons for upholding a covenant on the part of the vendor in all such cases to desist from the business in competition with the purchaser, which do not obtain in other cases. The vendor receives an equivalent for his partial abstention from that business, in the increased price paid him for it on account of his covenant; and his entering into and observance of the covenant not only do not tend to his pauperization to the detriment of the public, but on the contrary, by securing to him the full value of his business and its good will, a value which he has an absolute right to secure in this way, the covenant operates to his affirmative pecuniary benefit and against his impoverishment." These reasons for upholding a covenant in a contract of sale do not obtain in a contract of employment. On the contrary, restrictive covenants in employment contracts "tend to injure the parties making them, diminish their means of procuring livelihoods and a competency for their families; tempt improvident persons, for the sake of present gain, to deprive themselves of the power to make future acquisitions, and expose them to imposition and oppression; tend to deprive the public of the services of men in the employments and capacities in which they may be most useful to the community as well as to themselves." Rakestraw v. Lanier, supra.
We now come to a consideration of the present contract, in the light of the foregoing rules and tests. It is apparent that *805 the contract is reasonable as to its time limitation. But is the scope of the territorial limitation reasonably necessary for the protection of the employer's business? The restrictive covenant prohibits the employee from engaging in a competitive employment in named towns, and a 75-mile radius of each town. By reference to a map of the State, it is readily discovered that the territory embraced in the contract covers practically the entire State of Georgia. Excluded therefrom is only extreme North Georgia, extreme South Georgia, and extreme Southeast Georgia. The territory extends far above Atlanta, to the north, including such towns as Cedartown, Cartersville, Canton, Gainesville and Athens. To the south it includes such towns as Albany, Moultrie, Tifton, Douglas, and Jesup. On the western side of the State it includes Columbus and LaGrange and a portion of East Alabama. On the east it includes Augusta and extends practically to Savannah.
The most favorable evidence for the employer on the question of the reasonableness of the territory embraced in the contract is quoted in the statement of facts. Admittedly, the employer does not do business in all of the territory embraced in the contract; but evidence was offered to the effect that the employer anticipated going into all cities of Georgia in the future "when and as conditions permit profitable operations in such other cities."
Under the preceding rulings, and the circumstances surrounding the contract as disclosed by the evidence, the paramount question for decision is whether a territorial limitation is reasonable which covers practically the entire State, and territory in which a company is conducting no business whatever but hopes and anticipates it will conduct business in the future. We find no previous adjudication of our court directly in point. Decisions from foreign jurisdictions are conflicting, some being to the effect that a territory covering an entire State is not unreasonable and others being to the effect that a territory covering even a city, and not confined to the particular part of the city in which the employee actually worked, is unreasonable. 17 C. J. S., § 254, pp. 637, 638; 9 A.L.R. 1450, 1456; 20 A.L.R. 857, 861; 98 A.L.R. 958, 963. This court has passed many times upon the validity of restrictive covenants. In a majority of cases where *806
the restrictive covenant has been held valid, the territorial limitation was confined to a town, city, or county. With respect to restrictive covenants in employment contracts, we find one case in which this court held valid a restrictive covenant in which the territorial limitation covered one city and a 50-mile radius thereof (Ogle v. Wright,
With respect to a restrictive covenant in a contract of sale, this court held in Hood v. Legg, supra, that such a covenant embracing territorially a city and a 300-mile radius thereof was not unreasonable. But that case involved the sale of a manufacturing plant, where covenants are viewed with more indulgence as to the restraints imposed. In discussing at length the reasons why the court in that case considered the territorial limitation reasonable, the court said: "Some courts hold that to be reasonable the territorial limitation must not be greater than the extent of the business when sold, while others hold that such limitation may extend over the area to which the business may afterwards be extended. . . It seems fair and just, and also conductive to business integrity, that a person who purchases a business including the good will, with the purpose of extending its scope, is entitled to contract with his vendors against competition from them within the territory into which he designs to extend it, and that such a contract is not opposed to public policy when the area which it embraces is not greater than that which the parties may fairly anticipate the extended business will cover. . . The business, in the present instance, is that of manufacturing brick. The plant is situated, not in a large city affording a sufficient market for the present and future products of the plant, but, as this court must know, it is located where there can be no reasonable prospect of a local market sufficient to maintain such a plant as a going concern. . . The business of manufacturing and selling brick in the construction of buildings and walls of various kinds, to be successful, must *807 command a wide market. Such market, over such a territory, was enjoyed by the brick company before its sale to Hood."
None of the reasons for the extensive territorial scope in the sale of a manufacturing enterprise exist in a contract of employment. In the protection of the employer against the possibility of a former employee's contacting its customers, it is not reasonably necessary that he should be prohibited from working in a territory where the employer has never had customers. Certainly, the inclusion of such territory in a restrictive covenant is broader than reasonably necessary to protect the employer where there is no anticipation of immediately extending the company's business into the prohibited territory, but the anticipation is nothing more than a hope, based upon contingencies, which may or may not occur. Whatever may be the rule with regard to contracts of sale, it is our opinion, in view of the repeated rulings that employment contracts require more limited restraints, that such a broad territorial limitation unduly restricts the employee without any reasonable necessity therefor.
We think that the reasoning of the court in Parish v.
Schwartz,
While the territorial limitation of the present contract does not extend to the entire State, the practical effect is the same. Only a small part of the State is excluded; and to continue in his same line of employment, the employee, for all practical purposes, would have to move beyond the boundaries of the State. The contract is no more reasonable than if it had included the entire State except Rabun's Gap. In any event, it covers territory in which the employer has never engaged in business; and the territorial scope of such a contract is not made more reasonable by the fact that the employer entertains the hope that some day its business may extend to every city within the State. Such a contract is "unreasonable, not necessary for the protection of the party in whose favor the restraint was imposed, oppressive to the party restrained, and opposed to the interests of the public." Rakestraw v. Lanier, supra. Accordingly, it is contrary to public policy and void.
2. Aside from any consideration of the reasonableness of the contract as to its time and territorial limitations, it is contrary to public policy because it is "otherwise unreasonable" under the particular facts of this case.
It is manifest that the provisions of the Servicemen's Readjustment Act, and regulations adopted by Congress pursuant thereto (38 U.S. Code, 1947 Supp., part 8, p. 177), were intended to furnish to veterans on-the-job training in order to speedily provide for their employment in a gainful occupation, to reduce the problem of unemployment among returning veterans, and *809 to assure the veterans, provided with on-the-job training, of a reasonable certainty of using that training in a gainful occupation. This law was not intended as a mere dole to veterans. The beneficent purposes of the law were to assure the veteran of gainful employment, and at the same time to relieve the nation from economic problems which might be attendant upon the return of millions of veterans without a job or means of support. It is specifically provided that, in order to qualify as an institution for on-the-job training, an establishment must meet certain criteria, including: "There is reasonable certainty that the job for which the veteran is to be trained is to be available to him at the end of the training period." Manifestly, it was intended that the trainee should be able to make use of his knowledge gained through training by continuing in gainful employment in the work for which he has been trained.
In the present case the veteran applied to, and was accepted by, the employer for on-the-job training. Yet the employer required him to sign a contract, under the terms of which he might be dismissed prior to the completion of his training, with or without cause, with the practical result that he could not continue with the course of training he had pursued, nor continue employment in the trade for which he had been trained, unless he removed himself beyond the borders of the State. The contract forces the trainee, after he has been discharged or resigns, into unemployment, or into another line of endeavor within the State, or, at the least, makes it exceedingly difficult for him to continue his training or the work for which he has been trained, with the result that all public money expended for the purpose of assuring the veteran a gainful occupation has been wasted. Obviously, such a contract tends to defeat the beneficent purposes of the Servicemen's Readjustment Act; and such a contract is calculated to bring about the very results the law seeks to prevent. "Contracts that obviously and directly tend in a marked degree to bring about results that the law seeks to prevent can not be made the ground of a successful suit." Such contracts are "against public policy." Robinson v. Reynolds,
The public policy of this State with reference to the educational benefits to which veterans are entitled by the laws of Congress *810 has been expressly declared. By an act of 1947 (Ga. L. 1947, p. 1143, Code, Ann. Supp., § 78-402a), it is provided: "It is hereby declared to be the public policy of the State of Georgia, and the intent of this Chapter, to assist veterans, as hereinafter defined, in securing the educational benefits to which they are entitled under the laws of the United States, and to insure that all moneys coming into the State of Georgia for educational benefits of veterans shall be disbursed solely and wisely for that purpose." It seems needless to state that public money expended in training a veteran, who thereafter may be prohibited from using, or continuing, his training within the State, has not been wisely spent.
For the foregoing reasons, the contract in question is contrary to public policy and unenforceable.
The trial court erred in granting an injunction and in sustaining a demurrer to that portion of the answer which alleged that the contract was void because contrary to public policy. No error is made to appear in other rulings on demurrer.
Judgment reversed in part, and affirmed in part, on thecross-bill of exceptions. Main bill dismissed. All the Justicesconcur.
