Girard Investment Co. v. Bello ( 1974 )

Opinion by

Mr. Justice Eagen,

In this action in equity, the chancellor entered an adjudication and decree nisi in favor of the defendants. Exceptions by the plaintiff were dismissed, and the decree nisi was made final. The plaintiff filed this appeal.

The factual background is as follows.

On April 9, 1962, the appellee, Bello, entered into a written contract of employment with the Girard Investment Company [Girard], This employment contract contained a restrictive employment covenant which states: “13. That for a period of one year after the termination of my employment for any reason I will not engage in any way, directly or indirectly, in any business competitive with the Employer’s business, nor solicit or in any other way or manner work for or assist any competitive business, in any city or the environs or trade territory thereof in which I shall have been located or employed within one year prior to such termination.”

On October 6, 1972, Bello terminated his employment with Girard, and on the next day established his own concern, Bell Consumer Discount Company [Bell], with himself president thereof. Bello had been continuously employed from the middle of August 1965 until his cessation of employment, with one brief temporary assignment elsewhere, as branch manager of the Logan Square-Norristown office of Girard.

On November 16, 1972, Girard brought this action in equity to enjoin Bello from continuing his employment in the consumer discount business in Logan Square’s “trade territory” and to enjoin Bell from employing Bello in their business. A preliminary injunction hearing followed on December 5, 1972, and the requested preliminary injunction was denied on December 15, 1972. A final hearing was held on January 30,1973, and on May 29, 1973, the chancellor filed his adjudication and decree nisi. Girard filed exceptions to the chancellor’s adjudication, which were heard by the court en banc and eventually dismissed on August 28,1973.

The chancellor held “that the general covenant not to compete contained in paragraph 13 of the employment contract is not reasonably necessary for the protection of Girard and constitutes an undue hardship on the Defendants [appellees] due to its overly broad geographic limitations.”

Restrictive employment covenants (covenants not to compete) are valid only if they are reasonably limited in duration of time, geographic extent and are “reasonably necessary for the protection of the employer . . . without imposing undue hardship on the employee. . . .” Restatement of Contracts, §516 (f) (1932); Jacobson & Co., Inc. v. International Environment Corp., 427 Pa. 439, 452, 235 A. 2d 612, 620 (1967); and Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 628, 136 A. 2d 838, 844 (1957). Accord, Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A. 2d 768 (1965). The chancellor determined that the covenant involved was deficient in two respects: (a) it was overly broad in geographic extent; and (b) it constituted unnecessary protection for the employer, while placing an undue burden on the employee. Since, we agree that, under the circumstances, the covenant was not reasonably necessary for the employer’s protection, we will affirm the decree.¹

This Court in Morgan’s Home Equipment Corp. v. Martucci, supra, announced the standard concerning what is reasonably necessary for an employer’s protection. We there stated: “[Different reasons motivate the upholding of general covenants not to compete which are ancillary to employment. An employe may receive specialized training and skills, and learn the carefully guarded methods of doing business which are the trade secrets of a particular enterprise. To prevent an employe from utilizing such training and information in competition with his former employer, for the patronage of the public at large, restrictive covenants are entered into. They are enforced by the courts as reasonably necessary for the protection of the employer.” Id. at 631, 136 A. 2d at 846. Also see Restatement of Contracts, §516 (f), comment (h) (1932).

Clearly, none of these elements are present in this case; and, furthermore, we are convinced there is no undue hardship placed upon the employer by the employee’s cessation of employment, that would allow it to place such a restriction upon Bello.²

Decree affirmed. Each side to bear own costs.

Mr. Chief Justice Jones concurs in the result.

1 It should be noted that Girard mandated all of its employees, no matter in what capacity they served, to sign the same restrictive covenant here in question.

2 The dissenting opinion of Mr. Justice Pomeroy accuses tlie majority of restricting their consideration of what is reasonably necessary for the protection of the employer to whether there was special training or skills received by the employee from his employer. However, as indicated in the last paragraph of this opinion, we considered the elements mentioned in Morgan, supra, as well as all other possible reasons for the employer to invoke such a restriction, but were unable to discover any such justification.