Court Opinion

ID: 9772948
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:33:53.398898+00
Date Added: 2024-06-11T07:31:49.464211
License: Public Domain

FONES and BROCK, JJ.,
dissent in separate opinion.
BROCK, Justice, dissenting.
I respectfully dissent.
In Associated Dairies, Inc. v. Ray Moss Farms, Inc., 205 Tenn. 268, 326 S.W.2d 458 (1959), this Court held that continued em*38ployment is no consideration for a restrictive covenant imposed after an employment relationship has begun. In Ray Moss, a competitor of the employer, who was in the dairy business, allegedly began to hire the employer’s sales drivers and to use those drivers to solicit the employer’s business. In response, the employer required its drivers, including the defendant, to sign a non-competition agreement. In refusing to enforce the agreement, this Court found as follows:
“In the case at bar there was no agreement that the complainant would retain the defendant for as much as one day.... In these circumstances there was no consideration to sustain the contract which purports to restrain the defendant from engaging in the solicitation of business for another.” Id., 205 Tenn. at 275, 326 S.W.2d at 461.
Thus, if the terms of the original employment agreement do not include a covenant not to compete, any subsequent covenant must be supported by some consideration other than mere continued employment under a contract terminable at will. See, e.g., Di Deeland v. Colvin, 208 Tenn. 551, 347 S.W.2d 483 (1961) (new obligation to give two weeks’ notice before employment terminated held to be adequate consideration).
Ray Moss is supported by the following reasoning in Pemco Corp. v. Rose, 163 W.Va. 420, 257 S.E.2d 885, 890 (1979):
“The argument that the employer’s consideration for the non-competition covenant is the forebearance of the legal right of discharge we find unavailing but not without logical support_ Common law principles governing employment contracts should not be employed to supply consideration for a non-competition covenant where such a provision was not freely bargained for by the parties.”
In the instant case, CAB did not present the covenants to the defendants until after they had terminated their previous employment and begun work for CAB. Although the covenants were presented to the defendants as soon as or shortly after they began working, at that point the covenants were no longer the subject of free bargaining. As the Court of Appeals observed, “[ejven if he [the employee] is notified of the restrictive covenant on the first day of his new employment, he has foreclosed his other options at that point and has little choice but to sign.”
The Ray Moss rule that an employee’s anticompetitive covenant executed after the commencement of his employment is unenforceable because without consideration is followed in a number of other states. Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543, 152 A.L.R. 405 (1944); Wilmar, Incorporated v. Liles, 13 N.C.App. 71, 185 S.E.2d 278, 51 A.L.R.3d 816 (1971), cert. denied 280 N.C. 305, 186 S.E.2d 178 (1972); Forrest Paschal Machinery Co. v. Milholen, 27 N.C.App. 678, 220 S.E.2d 190 (1975); Schneller v. Hayes, 176 Wash. 115, 28 P.2d 273, 275 (1934); George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A.2d 311 (1975); Beaver Productions, Inc. v. Johnston, III, La.App., 335 So.2d 59 (1976); Morgan Lumber Sales Company v. Toth, 41 Ohio Misc. 17, 321 N.E.2d 907 (1974); Pemco Corp. v. Rose, supra (applying Virginia law). We are urged to hold in this case that consideration may be found to have consisted of promotions and increases in compensation granted to the de'fendants-employees over the years of their employment with the appellant. Davies & Davies Agcy., Inc. v. Davies, Minn., 298 N.W.2d 127 (1980) is cited as authority for such a holding. I decline this invitation because of the fundamental doctrine that in order for an act to constitute consideration for a promise it must have been “bargained for and given in exchange for that very promise.” Section 75, Restatement of Contracts, American Law Institute. There is simply no indication in this record whatever for a conclusion that promotions and increases in compensation, given years after the covenants not to compete were executed, were bargained for and given in exchange for those covenants. The covenants not to compete in the instant case were not bargained for at all but were merely imposed upon the employees after *39their employment began. I would hold that these covenants fail for lack of consideration. The majority finds consideration where there is none.
In Allright Auto Parks, Inc. v. Berry, 219 Tenn. 280, 409 S.W.2d 361 (1966) this Court held that “the time and territorial limits involved must be no greater than is necessary to protect the business interests of the employer.” In the instant case the Chancellor found that Central Adjustment Bureau had a legitimate business interest to be protected by the noncompetition covenants and that the defendants’ competition damaged that interest.
I agree with both the Chancellor and the Court of Appeals that the restrictions in these covenants were unreasonably broad. But, we are urged to uphold the reasonableness of the covenants as they have been altered by the Chancellor. It is said that this Court has not previously addressed this question and to the best of my knowledge that is true.
Some courts have taken one of two courses in “modifying” noncompetition covenants. The “blue pencil” rule allows an unreasonable restriction against competition to be modified and enforced to the extent that a grammatically meaningful, reasonable restriction remains after the words rendering the restriction unreasonable are stricken. See Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970).
Other courts, including the majority in this case, have followed what has been referred to as the “rule of reasonableness” in altering unreasonable covenants not to compete and enforcing such covenants as altered. See Ehlers v. Iowa Warehouse Company, Iowa, 188 N.W.2d 368 (1971). Under this rule it is said that unless the circumstances indicate “bad faith” on the part of the employer, the court will enforce covenants not to compete to the extent that they are reasonably necessary to protect the employer’s interest “without imposing undue hardship on the employee when the public interest is not adversely affected.”
Ehlers v. Iowa Warehouse Company, supra, at 370.
I think it unwise to follow either of these courses. I continue to adhere to the rule that the courts of this state have no business in creating new contracts for the parties. Bob Pearsall Motors, Inc. v. Regal Chrysler-P., Inc., Tenn., 521 S.W.2d 578 (1975). Our proper role is to enforce a contract as written, or, if it be invalid, to reject it altogether. As the Supreme Court of Arkansas held in Rector-Phillips-Morse, Inc. v. Vroman, 253 Ark. 750, 489 S.W.2d 1, 61 A.L.R.3d 391 (1973), when a covenant against competition is too far reaching to be valid, the court will not make a new contract for the parties by reducing the restriction to a shorter time or to a smaller area; the parties are not entitled to make an agreement that they will be bound by whatever contract the courts may make for them at some time in the future, since this would confer upon the courts the power to make private agreements. I also find persuasive the following observation:
“For every covenant that finds its way to court, there are thousands which exercise an in terrorem effect on employees who respect their contractual obligations and on competitors who fear legal complications if they employ a covenator, or who are anxious to maintain gentlemanly relations with their competitors. Thus, the mobility of untold numbers of employees is restricted by the intimidation of restrictions whose severity no court would sanction. If severance is generally applied, employers can fashion truly ominous covenants with confidence that they will be pared down and enforced when the facts of a particular case are not unreasonable. This smacks of having one’s employee’s cake, and eating it too.” Blake, Employee Agreements Not to Compete, 73 Harv.Law Rev. 625, 682-83 (1960).
The policy whereby unreasonable covenants not to compete are to be modified by the courts and, as thus modified, enforced, will permit an employer to insert oppressive and unnecessary restrictions into such *40covenants, knowing that the courts will modify and enforce the covenants on reasonable terms. And, when such covenants contain a provision for the employer to recover attorney’s fees, as they often do, the employer will have nothing to lose by going to court, thereby provoking needless litigation. See, Rector-Phillips-Morse, supra.
I would hold that the Chancellor erred in his attempt to so modify the unreasonable provisions of these covenants not to compete as to render them reasonable and to enforce the altered “covenants.”
I am authorized to state that Mr. Justice FONES concurs in this dissent.