Gaver v. Schneider's O.K. Tire Co.

• Decision Date: 14 November 2014
• Docket Number: No. S–13–1014,S–13–1014
• Parties: Jason Gaver, appellee, v. Schneider's O.K. Tire Co., appellant.
• Court: Nebraska Supreme Court

856 N.W.2d 121

Jason Gaver, appellee

v.Schneider's O.K. Tire Co., appellant.

No. S–13–1014

Supreme Court of Nebraska.

Filed November 14, 2014

Ralph A. Froehlich, of Locher, Pavelka, Dostal, Braddy & Hammes, L.L.C., for appellant.

Stan A. Emerson, of Sipple, Hansen, Emerson, Schumacher & Klutman, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, STEPHAN, McCORMACK, MILLER–LERMAN, and CASSEL, JJ.

Syllabus by the Court

1. Declaratory Judgments: Appeal and Error.When a declaratory judgment action presents a question of law, an appellate court decides the question independently of the conclusion reached by the trial court.

2. Contracts: Appeal and Error.The interpretation of a contract is a question of law, in connection with which an appellate court has an obligation to reach its conclusions independently of the determinations made by the court below.

3. Contracts: Public Policy.At common law, all contracts in restraint of trade are against public policy and void.

4. Restrictive Covenants: Employer and Employee.Covenants not to compete, as partial restraints of trade, are enforceable if the covenants are reasonable.

5. Restrictive Covenants: Employer and Employee.In determining whether a covenant not to compete is valid, a court considers whether the restriction is (1) reasonable in the sense that it is not injurious to the public, (2) not greater than is reasonably necessary to protect the employer in some legitimate interest, and (3) not unduly harsh and oppressive on the employee.

6. Restrictive Covenants: Employer and Employee.An employer has a legitimate business interest in protection against a former employee's competition by improper and unfair means, but is not entitled to protection against ordinary competition from a former employee.

7. Restrictive Covenants: Employer and Employee: Goodwill: Words and Phrases.To distinguish between ordinary competition and unfair competition, courts focus on an employee's opportunity to appropriate the employer's goodwill by initiating personal contacts with the employer's customers.

8. Restrictive Covenants: Employer and Employee: Goodwill.Where an employee has substantial personal contacts with the employer's customers, develops goodwill with such customers, and siphons away the goodwill under circumstances where the goodwill properly belongs to the employer, the employee's resultant competition is unfair and the employer has a legitimate need for protection against the employee's competition.

9. Restrictive Covenants: Employer and Employee.An employer has a legitimate need to curb or prevent competitive endeavors by a former employee who has acquired confidential information or trade secrets pertaining to the employer's business operations.

10. Restrictive Covenants: Employer and Employee.An employer does not ordinarily have a legitimate business interest in the postemployment preclusion of an employee's use of some general skill.

11. Contracts.The law does not look with favor upon restrictions against competition, and therefore, an agreement which limits the right of a person to engage in a business or occupation will be strictly construed.

12. Restrictive Covenants: Courts: Reformation.It is not the function of the courts to reform unreasonable covenants not to compete solely for the purpose of making them legally enforceable.

Miller–Lerman, J.

NATURE OF CASE

Jason Gaver, the appellee, was employed by Schneider's O.K. Tire Co. (Schneider's), the appellant, on two separate occasions, and on each occasion, Gaver signed a noncompete agreement. After Gaver's second employment relationship with Schneider's ended on July 23, 2012, he filed his amended complaint in the district court for Platte County seeking a declaratory judgment that the noncompete agreements were unenforceable. After a bench trial, the district court filed an order in which it determined that the scope of the noncompete agreements was greater than reasonably necessary to protect Schneider's against unfair competition and that therefore, the noncompete agreements were unreasonable and unenforceable. The district court entered declaratory judgment in favor of Gaver and against Schneider's. Schneider's appeals. We determine that the applicable noncompete agreement at issue in this case is greater than reasonably necessary to protect a legitimate interest of Schneider's, and therefore, we affirm the district court's determination that it is unreasonable and unenforceable.

STATEMENT OF FACTS

Schneider's is a business located in Columbus, Nebraska that sells tires and services motor vehicles. Gaver was twice employed by Schneider's: from October 29, 2001, to September 18, 2006, and from February 25, 2008, to July 23, 2012. Gaver voluntarily ended his employment relationships with Schneider's.

In 1991, prior to Gaver's employment relationship with Schneider's, Schneider's had established a profit-sharing plan with the First National Bank of Omaha as the trustee. The plan was later transferred to another entity. The profit-sharing plan is not in the record, but the adoption agreement, titled “Adoption Agreement # 001 Standardized Profit Sharing Plan (Paired Profit Sharing Plan),” is in the record.

On each occasion that Gaver was employed by Schneider's, Gaver and the president of Schneider's, Bruce Schneider, entered into almost identical noncompete agreements. The

agreements are freestanding documents, not provisions of the profit-sharing plan, and we make no comment on the propriety of such noncompete provisions in profit-sharing plans. Schneider's asked its employees to enter into the noncompete agreements as a condition of participating in the company's profit-sharing plan.

The first agreement was entered into on April 16, 2003, and it was drafted by Schneider's attorney. The second agreement was entered into on December 5, 2008, and it was drafted by Schneider's secretary and treasurer, using the 2003 agreement as a model. As set forth in more detail below, the noncompete agreements generally state that Gaver may not establish or open any business similar to Schneider's or “in any manner become interested, directly or indirectly, either as an owner, partner, agent, stockholder, officer or otherwise, in any such business or trade” within a 25–mile radius of Columbus for a period of 5 years after the termination of Gaver's employment.

Because Gaver's first term of employment ended on September 18, 2006, the 5–year term designated in the 2003 agreement has expired. Because Gaver's second term of employment ended on July 23, 2012, the 5–year term designated in the 2008 agreement is still in effect. The second non-compete agreement is therefore the applicable agreement and the subject of our analysis.

The 2008 agreement provided:

This Agreement made and entered into this first day of December 5, 2008, by and between [Schneider's] of Columbus, Nebraska, hereinafter referred to as Employer, and ... Gaver, hereinafter referred to as Employee.

Whereas, Employee is employed, at will, by Employer under terms and conditions acceptable to both parties, and;

Whereas, Employer has established a Profit Sharing Plan for the benefit of his Employees, and;

Whereas, Employer desires to insure [sic] that the benefits of said Profit Sharing Plan are not used by Employee to the detriment of the Employer,

Now THEREFORE, in consideration of the benefits accruing to both parties as a result of the above-mentioned Profit Sharing Plan, the parties agree:

1. Employer shall maintain the Schneider's ... Profit Sharing Plan under the terms and conditions as set forth in the Adoption Agreement # 001, Standardized Profit Sharing Plan, (Paired Profit Sharing Plan) entered into by Employer on September 26, 1991.

2. Employee shall not establish or open any trade business similar to the business owned and operated by Employer or in any manner become interested, directly or indirectly, either as an owner, partner, agent, stockholder, officer or otherwise, in any such business or trade, within [a] twenty-five mile radius of Columbus, Platte County, Nebraska from and after the date of the execution of this agreement and continuing for a period of five (5) years after the termination of the Employee's employment for whatever reason.

THIS AGREEMENT IS NOT AND SHALL NOT BE INTERPRETED AS AN EMPLOYMENT AGREEMENT AND THIS AGREEMENT DOES NOT GIVE THE EMPLOYEE THE RIGHT TO BE EMPLOYED BY EMPLOYER.

THIS AGREEMENT IS NOT AND SHALL NOT BE INTERPRETED AS A RESTRICTION ON EMPLOYEE'S RIGHT TO BE EMPLOYEED [sic] IN A TRADE OR BUSINESS SIMILAR TO THE TRADE AND BUSINESS OWNED AND OPERATED BY EMPLOYED [sic].

(Emphasis supplied.)

It appears undisputed that Gaver received all the profit-sharing money he was due with respect to each period of employment.

Gaver filed his amended complaint on July 23, 2013, against Schneider's, seeking a declaratory judgment that the 2003 and 2008 noncompete agreements were unenforceable. Gaver alleged, inter alia, that he “desires to operate a business consisting of buying and selling new and used tires, installing them and servicing them in all aspects of tire related issues

and to do general maintenance on vehicles.” In paragraph 6 of his amended complaint, Gaver alleged:

The Non–Compete Agreements ... are inequitable, ambiguous, vague, lack consideration, is [sic] in contravention of the laws of the State of Nebraska, are not customer specific, are overly broad and provide excessive restrictions as to both time and area within which competition by [Gaver] is prohibited, are unreasonable and unenforceable.

Accordingly, Gaver sought an order “determining the Non–Compete Agreements to be unenforceable, unreasonable or, otherwise determining and adjudicating the rights, obligations and restrictions of the parties herein.”

Schneider's filed its answer on August 15, 2013, generally denying Gaver's allegations. Schneider's stated in its answer that it admitted that “the Non–Compete Agreements ... ‘are not customer specific’ and denie[d] the remaining averments in paragraph 6 ...