Court Opinion

ID: 9558519
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:11:19.551462+00
Date Added: 2024-06-11T09:09:21.361799
License: Public Domain

Schroeder, J.,
dissenting: I respectfully dissent. In view of (1) the appellee’s attempted overreaching in the restrictive covenant, (2) the failure of the restrictive covenant to serve a legitimate purpose, and (3) the statutory and administrative licensing scheme in the sale of liquor, I would reverse the trial court and find the restrictive employment covenant void and unenforceable.
*677In Kansas, although there is no rigid, absolute norm by which the reasonableness of an employment covenant against competition may be determined, the rights of the promisee, the promisor and the general public are to be taken into account. Both area and time limitations must be reasonable. (H & R Block, Inc. v. Lovelace, 208 Kan. 538, Syl. 2, 493 P.2d 205.)
It is clear the area and time limitations initially set out in the covenant were unreasonable. The appellant could be fired without cause at any time. The Sixth Paragraph concerning disclosure of information prohibited the appellant from ever selling or disclosing information about the appellee’s customers. No time limitation was imposed. However, the trial court, on a motion to amend, “interpreted” the contract to apply only the one-year restriction of the Seventh Paragraph.
The Seventh Paragraph prohibited the appellant from being employed or being connected in any manner with another similar business within a 50 mile radius of the appellee’s sales territory. This would cover over 40% of this state’s population. Under the equitable powers of the trial court, this area was reduced to the counties of Atchison, Douglas, Leavenworth and Wyandotte. The future employment activities were reduced to restrict only sales activities of a similar vein for the appellant.
In Foltz v. Struxness, 168 Kan. 714, 215 P.2d 133, this court approved the reduction of a territorial limitation in a covenant not to compete from 100 miles from the City of Hutchinson to a radius of five miles from the City. There, however, the contract was between an older doctor with an established medical practice in Hutchinson and a younger doctor seeking a location. The one-year contract of employment was later to be negotiated to carry on the practice. Both doctors were found by the trial court to have acted in good faith in attempting, although unsuccessfully, to negotiate the partnership agreement. The opinion thus states:
“It is the duty of courts to sustain the legality of contracts in whole or in part when fairly entered into, when reasonably possible to do so, rather than to seek loopholes and technical legal grounds for defeating their intended purpose.” (Syl. 5.) (Emphasis added.)
Here the restrictive covenant relates solely to employment and did not contemplate a future partnership, stock ownership or other transfer of the business. Although the trial court found no violation of public policy, I do not believe the initial covenant *678was fairly entered into. The trial court was forced to use its equitable powers to reduce the time and area limitations and scope of the restrictive covenants. I would not invoke equity to aid the appellee. Particularly I would not do so where the restrictive covenant specifically provided:
“Entire Agreement. This agreement contains the entire agreement of the parties and may be changed only by written instrument signed by both of the parties hereto.”
Secondly, the covenant does not serve a legitimate public interest. As the majority indicates, if the real object of a restrictive employment covenant is merely to remove a competitor and avoid ordinary competition, the covenant is unreasonable because it is not necessary for the protection of a legitimate interest. (See 54 Am. Jur. 2d, Monopolies, Restraints of Trade, and Unfair Trade Practices, § 543, pp. 982-983; and Annot., 43 A.L.R. 2d 94, 161 [1955].)
Here there are no trade secrets or secret lists of customers. The identity and location of potential customers is a matter of public knowledge in this state’s highly regulated liquor business.
The majority refers to Professor Blake and indicates sufficient “customer contacts” are present here to enforce the covenant. The numerous letters sent by the appellee, Eastern, to its customers indicates clearly Eastern did not depend solely on the appellant to contact its customers. In view of this mailing, the locale of the customer contact is unimportant. The key question on “customer contacts” then is the nature of the appellant’s work. Therefore, the opinion in Clark Paper & Mfg. Co. v. Stenacher, 236 N.Y. 312, 140 N.E. 708 [1923], reh. denied 236 N.Y. 638, 142 N.E. 316, where a salesman’s covenant not to enter into a competitor’s employ for eight years was found unreasonable, is particularly appropriate. There the court noted:
“There was nothing peculiar in the nature of the work undertaken for the plaintiff by the defendant. He was engaged to sell wrapping paper. The customers were drummed up from Dun and Bradstreet’s books. There was apparently no customer in Rochester using wrapping paper who was not known to be a possible customer to every one of the plaintiff’s competitors. There was no secret list of customers or information regarding them which the defendant could reveal to a competitor. . . .
“The defendant had obtained no information regarding the plaintiff’s paper business or any other branch of it which he could carry or reveal to others. For $35 a week he sold wrapping paper which his employer purchased in the market. The *679plaintiff was not fearful that any of its business methods or secrets would be revealed by the defendant to the George Irish Paper Company, or to any one else; neither did it prove that any damage could possibly come to it by a statement of its business methods. The fact is, the plaintiff sought in this indirect way to prevent by such an agreement its employee from leaving its service and did not primarily seek to enjoin him from imparting information which might do it harm. It anticipated no other harm than might come from a trained salesman carrying his acquired skill elsewhere.” (p. 318.)
(See also Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 246 N.Y.S.2d 600, 196 N.E.2d 245 [1963].)
The majority’s attempt to distinguish this decision as also resting “on the fact that the contract as alleged by the plaintiff employer had not been proved in that the time at which the eight-year period was to commence had never been agreed upon” is not persuasive. The agreement was made November 14, 1914, and was effective January 1, 1915. The salesman left on April 23, 1917. If the eight-year agreement were effective when made, under the facts of that case, it seems clear the court would have refused enforcement. (See also 54 Am. Jur. 2d, Monopolies, Restraints of Trade, and Unfair Trade Practices, § 557, pp. 990-991; and Annot., 43 A.L.R.2d 94, 172, 185 [1955].)
Here Eastern could easily have hired another trained salesman and fairly competed in the liquor market. The majority says the appellant was “hired away” from Eastern to serve the same customers he knew while employed by Eastern. The record is clear that it was the appellant who made application for other employment and who initiated the contact with GrantBillingsley, his new employer. Although Grant-Billingsley had previously done little business in this area, it is the appellee’s fear of true competition, rather than an inference that GrantBillingsley was hiring away Eastern’s salesman in order to unfairly compete, which should be emphasized.
Third, the restrictive employment covenant, in my opinion, flies in the face of our statutory and administrative licensing scheme for the sale of liquor. A liquor salesman must meet certain criteria and be licensed by the State of Kansas in order to sell liquor to retailers in Kansas. (K.S.A. 1976 Supp. 41-311 and K.A.R. 14-9-1 et seq.) Here the appellee who is licensed to sell liquor anywhere in Kansas and lives in Kansas City, Kansas, will either have to sell his home and move if he wishes to remain a liquor salesman or search for another type of work. I would not permit a restrictive covenant to contravene state law.
*680For the reasons stated it is respectfully submitted the trial court should be reversed and the restrictive employment covenant should be held void and unenforceable.