Case ID: ad_133/html/0062-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The McCall Company, Appellant, v. John H. Wright, Respondent.
    First Department,
    June 18, 1909.
    Injunction— contract of employment —- covenant not to engage in other business — mutuality.
    Where in a suit by a corporation to enjoin its general manager from entering the employ of a competitor in violation of a covenant in his contract of employment to engage in no other occupation during the period of the contract,, the prayer for relief rests upon the ground that defendant by his acts threatens to injure the plaintiff by building up a competing business upon the foundation of the special knowledge of trade secrets, and skill acquired solely during his employment by the plaintiff and is based upon the proposition that defendant’s ability to injure plaintiff by advancing the interest of the competitor is special, unique and extraordinary, owing to the confidential nature of his position, the complaint is not demurrable since the court has power to grant relief upon the facts disclosed.
    A contract of employment is not void for lack of mutualitv'because the employer does not by precise words engage to employ the employee for a specified term or by reason of the fact that the employer reserves the right to terminate the contract .upon thirty days’ notice.
    Appeal by the plaintiff, The McCall Company, from an interlocutory judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 12th day of April, 1909, upon the decision of the court, rendered after a trial at the New York Special Term, sustaining the defendant’s demurrer to the amended complaint.
    
      William P. Chapman, Jr., for the appellant.
    
      S. Clinton Crane, for the respondent.
   Scott, J.:

Plaintiff appeals from an interlocutory judgment sustaining a demurrer to the complaint. The action is an equitable one for the enforcement of a negative covenant by defendant not to e'ngage for a limited time in any business which will compete with that carried on by the appellant. The plaintiff is engaged in the business of designing and making dress patterns, printing, publishing and circulating certain fashion publications and general advertising. It does a very large business, divided into different departments, and employs a large number of persons. The defendant, who had been a bookkeeper in a department store, entered plaintiff’s employ in April, 1901, as assistant to the' manager of the sales department, at a salary of twenty dollars per week. His salary was increased from time to time until about October 8,1903, when it became fifty dollars per week. Between April 1, 1901, and January 1, 1905, defendant filled many positions in the sales department, circulating and premium departments, publication department, and as manager of the circulating and premium departments, and factory superintendent. 'His entire knowledge of the business has been gained while in plaintiff’s ¿mploy. It is alleged that the business of plaintiff has increased to great proportions, and spread all over the United States and Canada, mainly by reason of systems and methods devised and put in operation by its president, and which are not known to competitors in the business and are confidential in their nature. During the period of defendant’s employment, from April 1, 1901, to January 23, 1909, defendant had many opportunities to obtain knowledge of the plaintiff’s business and of the system and methods used therein, and liad many opportunities to obtain and' did obtain secret and confidential knowledge and information concerning the plaintiff’s customers and concerning the conduct and details in all of its branches.' On January 3,1905, a written contract of employment was entered into between plaintiff and defendant for a period of five years from January 1,-1905, subject to extension for a further term of five years at the option of plaintiff. Defendant’s salary was fixed upon an increasing scale from $3,000 for the first year to $5,000 for the fifth year,, and if the contract was extended for a second term of five years defendant’s salary was to be increased by $500 per annum until it amounted to $7,500. This contract contained a covenant on defendant’s part to engage in no other business during its term, and to use liis best endeavors in plaintiff’s behalf ■ and interest. Soon after making the contract defendant was made general.manager of plaintiff’s business and so continued until the contract was terminated on December 9, 1908. The complaint alleges that “ the defendant’s knowledge of the business continued to increase, * * * and his duties and responsibilities in like manner were increased and became of a more and more important and confidential nature, and during the time wlien he served as general manager, as aforesaid, the position which he held in the executive management of the plaintiff’s business was exceeded in confidence and importance by only one other position in the plain tiff’s employment having to do with the manufacture and' marketing of its products, namely, that of the president of the company. During the latter part of his service as general manager, his duties, in fact, exceeded in importance and in their confidential character those .which are usually devolved upon a merely adzninistrative general manager, and he was informed and consulted about the general business policies of the company, and there were no secrets of the business on its practical side which were not open to him and he shared in all of said secrets, which were numerous and important.” The complaint is replete with other allegations in detail respecting the defendant’s experience and opportunities while in plaintiff’s employ, ^11 tending to sustain the general allegation that “ the services performed by the said defendant * * * were special, unique and extraordinary, and the qualifications required for the satisfactory performance of the same were special, unique and extraordinary, and could be acquired only by years of training and familiarity with the business.” On December 9, 1908, in "consequence of defendant’s violation of his agreement not to engage in any other business, the above contract was abrogated and defendant discharged from plaintiff’s employ. He immediately sought re-employment, and after writing a contrite and apologetic letter he was re-employed on December 18, 1908, by a tentative agreement at a salary of $80 per. week. On J anuary 2, 1909, a formal agreement was entered into between the parties providing for defendant’s employment by plaintiff for a term of six years from January 1, 1909, at an increasing scale of compensation, commencing at $6,000 per annum and running up to $8,500. The light was reserved to plaintiff to terminate the contract at any time upon giving thirty days’-notice to defendant. This contract contains the following: “ The party of the second part (defendant) covenants to engage in no other occupation during said period (the term of his employment) and to use his best endeavors to promote the business and the business interests of the party of the first part (plaintiff).” The contract also contains the following: If the party of, the second part, while this contract remains -in effect, shall, in violation of its terms, enter into the employ or service or otherwise act in aid of the business of any rival company or concern engaged in - the same or a similar general line of business, the party of the first part shall be entitled to an injunction, to be issued by any competent court of equity, enjoining and restraining the party of the second part, and each and every other person concerned therein, from the continuance of such employment, service or other act in aid. of the business of such rival company or concern.”

The ■ plaintiff bases no claim upon this clause as coercing the discretion of the court, but relies upon it as an indication of the intent and purpose of the parties in inserting in the contract the restrictive covenant against the defendant’s engaging in other occupations, and as evidence of the consideration which moved plaintiff to re-employ the defendant. ' .

■ On January 23, 1909, the defendant entered into the employ of*' and became president of a rival company engaged in the same business as; plkintiff, or a similar business, and undertook and. attempted-to resign and' relinquish his employment by plaintiff. The plaintiff refused to accept the resignation or consent to the cancellation and abrogation of-the; contract between itself and defendant, and insisted that defendant' should remain in its employment and desist from his employment with the rival company. He refused to accede, and théreupon this action was commenced to obtain an injunction restraining defendant from '-entering into Or continuing in the ■employ or service, Or otherwise, acting in aid of the company with . which he -had associated himself, or any rival company or Concern engaged in the same general line of business as the plaintiff, or a similar, general line of business.

The demurrer was Sustained at Special Term on the .authority of Dockstader v. Reed (121 App. Div. 846), and the defendant now seeks to sustain the judgment by reference to .that and a line of similar cases-in which injunctive relief has. been refused. In- all of these cases, however, the Complaint -has proceeded upon the claim that the defendant’s services to the plaintiff were so special, unique and extraordinary that his place could not be filled, and, hence, that the plaintiff, if deprived of such services, would lose the benefit cf .his contract of employment. In the: present case, the plaintiff does not rest his prayer for relief upon this ground, but upon the ground that by entering the employ of a competitor, in violation of his agreement, defendant threatens to injure plaintiff by building up a competing business upon the foundation of the special knowledge ' and skill acquired during ljis' employment by the plaintiff. This position is based, not upon the claim- that defendant’s services to plaintiff were special, Unique -and-extraordinary (although that fact is alleged), because1 it is not denied that defendant’s place can be filled, but upon the proposition that defendant’s qualifications for injuring plaintiff by advancing the interests of a competitor are special, unique and extraordinary. There is a distinct and well considered line of cases in which injunctive relief has been granted in-cases like the present. (Davies v. Racer, 72 Hun, 43; Magnolia Metal Co. v. Price, 65 App. Div. 276; Mutual Milk & Cream Co. v. Prigge, 112 id. 652; Mutual Milk & Cream Co. v. Heldt, 120 id. 795.) The case of Magnolia Metal Co. v. Price (supra) resembles very closely the case at bar. The defendant had been employed by plaintiff for a term of years and had covenanted that in the event of his connection with the party of the first part ■ being severed under this agreement he will not, either directly or indirectly, connect himself with any company or firm engaged in business similar to that of the party of the first part, nor will he himself engage in any business that would compete with the business of the party of the first part for a period of five years from the date of his connection being so severed.” While in the plaintiff’s ■ employ the defendant in that action was enabled to obtain confidential information relative to the plaintiff’s method of doing business, the names, responsibilities and requirements of its customers, reports - of salesmen and the like. The defendant resigned his employment with the plaintiff, his resignation was accepted, and he at once entered into the employ of a competing company as its president. This court unanimously held that the plaintiff was entitled to an injunction for reasons clearly stated in the opinion of Mr. Justice Ingraham and which it is unnecessary here to restate. It is sufficient to say that they apply with equal force to the facts of the present ease. The same relief has frequently -been granted in other jurisdictions under similar circumstances. (Robinson & Co. v. Heuer, L. R. 2 Ch. Div. [1898] 451; Rousillon v. Rousillon, 14 Ch. Div. 351; Carter v. Alling, 43 Fed..Rep. 208.) In the - latter case the court states the rule as follows : It seems to me that the rule clearly deducible from all these authorities is that an employer has the right to bind an employe not to go into the employ of a competitor for a reasonable time after his employment terminates, within the territory where the employer seeks his market; and whether such covenant is reasonable and binding is a j udicial question which must depend in each case upon its peculiar-facts and circumstances.” It certainly cannot be claimed, upon the state of facts set forth in the complaint, that a restriction upon defendant not to engage with a trade competitor during the term of ' his employment by plaintiff is'unreasonable., It is claimed that the." contract of employment is unenforcible for lack of mutuality. It is true that plaintiff does not. by precise words engage, to employ defendant for the term specified, hut the whole contract is instinct with- such an obligation on its part, and there can he no doubt that ■upon a fair construction it imports" a hiring by the plaintiff as well ■as an obligation to serve by defendant. Mor does the fact that plaintiff reserves the right to terminate it upon thirty days’ notice deprive it of the element of mutuality. Such a clause is frequently inserted in such contracts, and in view of defendant’s violation of a former contract, was not an unreasonable clause .to insert here. The defendant’s cóvénant, as we consider, bound him only during the term of his employment. So long as his employment continued he was hound; when it terminated, by expiration of time or by mutual consent or by act of the plaintiff, he became free to engage in whatever occupation he chose. In this sense and to tliis'.extent the obligations of the parties were mutual and reciprocal. We are of the opinion that the complaint states a cause of action for equitable relief. ..■ ' .

. The judgment appealed from must, therefore, he "reversed, with ■ costs, and the demurrer overruled, with costs, with leave to respondent to withdraw the demurrer and to answer within twenty days .upon payment of said costs.

■’ Ihgbaham, McLaughlih, Laughlih and Clabkb, JJ., concurred^

Judgment. reversed, with costs, and demurrer overruled, with costs, witli leave to defendant to withdraw demurrer and to answer on payment of costs. ' •