Starkings Court Reporting Services, Inc. v. Collins ( 1984 )

313 S.E.2d 614 (1984)

STARKINGS COURT REPORTING SERVICES, INC.
v.
Ruth E. COLLINS.

No. 8312SC397.

Court of Appeals of North Carolina.

April 3, 1984.

Anderson, Broadfoot, Anderson, Johnson & Anderson, by Henry L. Anderson, Jr., Fayetteville, for plaintiff-appellant.

Russ, Worth, Cheatwood & McFadyen by Philip H. Cheatwood, Fayetteville, for defendant-appellee.

EAGLES, Judge.

Plaintiff assigns as error the trial court's conclusion of law that the covenant not to compete clause of the Independent Contractor Agreement between plaintiff and defendant was in restraint of trade, unreasonable and unfair to plaintiff, against public policy, illegal unenforceable and void. Plaintiff contends that the restrictions on this independent contractor are no broader than is necessary to protect the legitimate interests of the plaintiff. We do not agree.

G.S. 75-1 declares contracts in restraint of trade to be illegal in North Carolina. However, our courts have recognized the rule that a covenant not to compete is enforceable in equity if it is: (1) in writing; (2) entered into at the time and as part of the contract of employment; (3) based on valuable consideration; (4) reasonable both as to time and territory embraced in the restrictions; (5) fair to the parties; and (6) not against public policy. Orkin Exterminating Co. v. Griffin, 258 N.C. 179, 128 S.E.2d 139 (1962); Schultz and Associates v. Ingram, 38 N.C.App. 422, 248 S.E.2d 345 (1978). This court has noted that even where there is an otherwise permissible covenant not to compete:

[T]he restraint is unreasonable and void if it is greater than is required for the protection of the promisee or if it imposes an undue hardship upon the person who is restricted. Owing to the possibility that a person may be deprived of his livelihood, the courts are less disposed to uphold restraints in contracts of employment than to uphold them in contracts of sale. (Citations omitted.)

Wilmer, Inc. v. Liles, 13 N.C.App. 71, 75, 185 S.E.2d 278, 281 (1971). See also, Restatement (Second) of Contracts Section 188 (1979).

The covenant not to compete here is an unreasonable restraint of trade and thus unenforceable for two reasons: (1) it is against public policy in that its practical effect is merely to stifle normal competition and (2) it provides for greater restraint on defendant than is reasonably required for the protection of plaintiff. Defendant here was truly an independent contractor and not an employee of plaintiff: defendant used her own equipment, paid her own operating expenses, and was not subject to any regulation, direction or control by plaintiff as to format, timeliness or method in performing her court reporting assignments. Defendant had no access to trade secrets or unique information as a result of her business association with plaintiff. There was no need to protect plaintiff's customer lists, since anyone could go to a telephone book or lawyers' directory to find a list of attorneys who would be potential customers. It is clear, then, that this covenant not to compete was designed for one purpose: to restrain and inhibit normal competition. Our Supreme Court has said that when the effect of a contract "is merely to stifle normal competition, it is ... offensive to public policy ... in promoting monopoly at the public expense and is bad." Kadis v. Britt, 224 N.C. 154, 159, 29 S.E.2d 543, 546 (1944). In such a case, the public has a greater interest in preserving an individual's ability to earn a living than in protecting an employer from competition. Id. at 160, 29 S.E.2d at 546.

Because the covenant not to compete in this Independent Contractor Agreement is against public policy and provides for greater restraint on defendant than is required to protect plaintiff, the trial judge was correct in declaring this covenant not to compete to be invalid, void and unenforceable.

Affirmed.

WEBB and BECTON, JJ., concur.