Business Litigation

Company's Not-to-Compete Employment Restriction Upheld

The Employer sued several of its salesmen who had left the company and began competing for the employer’s customers. The case raised the issue of the enforceability of a covenant not to compete as part of any employment agreement. The employees were restricted from competing with their former employer for a period of two years and in the same territory in which they worked as salesmen. The lower court refused to enforce the covenant holding that such covenants were not favored in the law and caused an unreasonable restriction on the employee’s freedom of employment. Sickels, Frei and Mims appealed and The Supreme Court reversed the lower court holding that given the nature of the employment, the contacts provided to the employees, the customer lists and business methods that the restrictions on their post-employment activities were reasonable. The court established a three-part test to determine whether covenants not to compete were reasonable:

  • whether the restriction was reasonable in its scope (geographical area),
  • whether the restriction was reasonable in its duration and
  • whether the restriction was necessary to protect the goodwill of the employer.

BECAUSE THE RESULTS OBTAINED IN SPECIFIC CASES DEPEND ON A VARIETY OF FACTORS UNIQUE TO EACH CASE, PAST CASE RESULTS DO NOT GUARANTEE OR PREDICT A SIMILAR RESULT IN FUTURE CASES UNDERTAKEN BY A LAWYER OR LAW FIRM.