Opinion ID: 2792825
Heading Depth: 4
Heading Rank: 1

Heading: Nature of Transaction

Text: Whether a noncompete clause is valid and enforceable requires us to categorize the covenant as either an employment contract or the sale of goodwill. [3] Regardless of the context, a partial restraint of trade such as a covenant not to compete must meet three general requirements to be valid.18 First, the restriction must be reasonable in the sense that it is not injurious to the public.19 Second, the restriction must be reasonable in the sense that it is no greater than reasonably necessary to protect the employer in some legitimate business interest.20 Third, the restriction must be reasonable in the sense that it is not unduly harsh and oppressive on the party against whom it is asserted.21 [4] Nebraska courts are generally more willing to uphold promises to refrain from competition made in the context of the sale of goodwill as a business asset than those made in connection with contracts of employment,22 reasoning that in the sale of a business, “[i]t is almost intolerable that a person should be permitted to obtain money from another upon solemn agreement not to compete for a reasonable period within a restricted area, and then use the funds thus obtained to do 18 H & R Block Tax Servs., supra note 1. 19 Id. See, also, Polly v. Ray D. Hilderman & Co., 225 Neb. 662, 407 N.W.2d 751 (1987). 20 H & R Block Tax Servs., supra note 1. 21 Id. 22 Id.; Presto-X-Company v. Beller, 253 Neb. 55, 62, 568 N.W.2d 235, 239 (1977). Nebraska Advance Sheets 638 290 NEBRASKA REPORTS the very thing the contract prohibits.”23 Thus, a covenant not to compete ancillary to the sale of a business must be reasonable in both space and time so that it will be no greater than necessary to achieve its legitimate purpose. Whether such a covenant not to compete is reasonable with respect to its duration and scope is dependent upon the facts of each particular case.24 In H & R Block Tax Servs., the franchisor provided various goods and services to its franchisees, including training, advertising, and forms.25 It retained significant control over its franchisees, but the “main purpose of obtaining a franchise from [the franchisor was] to trade on the reputation and goodwill of its service mark and thereby acquire customers.”26 There, we found that the franchise agreement was analogous to the sale of a business for purposes of determining enforceability of the covenant not to compete.27 We then applied the analysis outlined for the sale of goodwill of a business asset to determine whether the noncompete clause was valid.28 We conclude that the characterization of the noncompete agreement contained in a franchise agreement used in H & R Block Tax Servs. is the correct one, and we apply the standard used in the sale of goodwill.