Insulation Corp. of America v. Brobston

• Citation: 446 Pa.Super. 520,667 A.2d 729
• Parties: , 64 USLW 2352, 11 IER Cases 170 INSULATION CORPORATION OF AMERICA, Appellee, v. Gary BROBSTON, Appellant.
• Decision Date: 03 November 1995
• Court: Pennsylvania Superior Court

Page 729

667 A.2d 729

446 Pa.Super. 520, 64 USLW 2352, 11

IER Cases 170

INSULATION CORPORATION OF AMERICA, Appellee, v. Gary BROBSTON, Appellant.

Superior Court of Pennsylvania.

Argued Jan. 31, 1995.

Filed Nov. 3, 1995.

Richard J. Orloski, Allentown, for appellant.

Howard S. Stevens, Allentown, for appellee.

Before DEL SOLE, KELLY and BROSKY, JJ.

KELLY, Judge.

In this opinion, we are called on to determine whether the enforcement of a two-year, three hundred mile "non-competition" covenant contained in a employment contract is reasonable where the former employee was terminated for poor performance and the employer's proprietary business information was already protected under injunctive enforcement of a "non-disclosure" covenant of the same agreement. Under such circumstances, we hold that the modified two-year time restriction imposed upon the former employee is both broader than necessary to protect the employer's business interests and unduly oppressive on the former employee. Accordingly, we affirm in part and reverse in part, dissolving the preliminary injunction enforcing the "non-competition" covenant of the agreement.

This appeal involves a challenge to the trial court's grant of a preliminary injunction in favor of appellee, Insulation Corporation of America ("ICA"), enforcing the terms of "non-disclosure" and "non-competition" restrictive covenants contained in a post-employment agreement between ICA and appellant, Richard Brobston ("Brobston"). The pertinent facts and procedural history of this case are as follows. ICA is a corporation engaged in the manufacture and sale of polystyrene packaging, roofing and insulation products. Brobston was hired by ICA in October, 1982. At the time, Brobston was forty-seven years old, had worked in the insulation industry since 1977, and began his employment without a written contract. His initial position was territory sales manager. In 1986, he was promoted to national account manager. In 1990, he was promoted to general manager.

In July, 1992, ICA decided to expand its product line from commodity or "anyone can do" ¹ products into more specialized products through the utilization of a computer-assisted design (CAD) system. Prior to purchasing the CAD system, ICA required that Brobston and certain other employees sign employment contracts which contained restrictive covenants or be terminated. On July 24, 1992, Brobston signed the proffered employment contract, which contained the following pertinent terms:

WHEREAS, Employer is considering changing from a commodity (anyone can do) type of product to a more specialized higher margin product that is far less dependent on the changes in construction activity; and

WHEREAS, Employer is about to purchase equipment and computer software to design and cut Employer's products with the assistance of computer assisted design (CAD), and the resulting system requires extensive knowledge and training; and

WHEREAS, Employer finds it necessary and essential to give specialized education and training to certain employees; and

WHEREAS, Employee will be the recipient of information with respect to the operation of the CAD system, including requirements, design, setup, pricing and operation, and, also, the identity of customers of Employer, and Employer's sources of leads for and methods of obtaining new business, and information and training with respect to various techniques, procedures, equipment, designs, drawings, plans, engineering or test data, customer and supplier lists, cost records and other information used or developed by Employer in carrying out Employer's business; and

* * * * * *

4. The Employee during the term of employment under this Agreement will have access to and become familiar with various trade secrets, consisting of formulas, patterns, devises, secret inventions, processes, sales, earnings, finances and compilations of information, records and specifications and all other concerns of the Employer, which are owned by the Employer and which are regularly used in the operation of the business of the Employer. The Employee shall not disclose any of the aforesaid trade secrets, directly or indirectly, nor use them in any way, either during the term of this Agreement or at any time thereafter, except as required by the Employer in the course of the Employee's employment for the Employer.

5. On the termination of Employee's employment, for whatever reason whatsoever, the Employee shall not, directly or indirectly, within three hundred (300) miles of Allentown, Pennsylvania, enter into or engage generally in direct competition with the Employer in the business of manufacturing and/or selling expanded polystyrene insulation or packaging either as an individual on Employee's own or as a partner or joint venturer, or as an employee or agent for any person, or as an officer, director, or shareholder or otherwise for a period of three (3) years after the date of termination of Employee's employment hereunder.

(Employment Contract at 1-5).

The purported consideration for Brobston's agreement to be bound was a $2,000.00 increase in his base salary and proprietary information concerning the CAD system, customers and pricing. In October, 1992, Brobston became vice president of special products, which included responsibility for sales of CAD system products and the commodity products. ² Over the course of the next year, Brobston failed to properly file sales call and expense account reports. Further, Brobston failed to make a satisfactory number of overnight sales calls. Finally, of the fourteen accounts in his territory, only three showed growth; the others showed either flat or decreasing sales. On August 13, 1993, ICA terminated Brobston's employment. On December 8, 1993, Brobston was hired by Foam Plastics of New England, a competitor of ICA, who was aware of the existence of ICA's restrictive covenants. (N.T. 12/23/93 at 80). On December 17, 1993, ICA sought injunctive relief against Brobston, and filed a petition in equity to enforce the employment agreement by enjoining him from disclosing proprietary information about ICA, and by restraining him from competing with ICA. The trial court issued a temporary restraining order on that day, and a preliminary injunction hearing followed on December 23, 1993. Brobston was placed on leave without pay by his new employer. (Id. at 113-14).

Following the preliminary injunction hearing, the trial court granted ICA's petition for a preliminary injunction and enjoined Brobston from disclosing ICA's trade secrets and from competing with ICA within three hundred miles of Allentown, Pennsylvania for a period of two years from the date of Brobston's termination. ³ (Trial Court Order, 12/30/93 at 3-4). This timely interlocutory appeal followed. ⁴

I. WHETHER OR NOT AN EMPLOYER WHO HAS AN ELEVEN YEAR EMPLOYEE SIGN A CONTRACT WITH A RESTRICTIVE COVENANT, AND THEN FAILS TO GIVE THE EMPLOYEE THE BENEFITS OFFERED IN SAID CONTRACT CAN ENFORCE THE CONTRACT AFTER THE EMPLOYER TERMINATES THE EMPLOYEE'S EMPLOYMENT?

II. WHETHER OR NOT AN EMPLOYER WHO RESERVES RIGHT TO CANCEL AN EMPLOYMENT CONTRACT, AND THEN TERMINATES THE RELATIONSHIP CANNOT HAVE THE BENEFIT OF A COVENANT NOT TO COMPETE?

III. WHETHER OR NOT A BELATED RESTRICTIVE COVENANT MUST GIVE EMPLOYEE A "CORRESPONDING BENEFIT"?

IV. WHETHER OR NOT THREE YEARS, 300 MILES IS UNREASONABLE AS A MATTER OF LAW, AFTER EMPLOYMENT TERM OF 10 YEARS WITHOUT SUCH A RESTRICTION?

V. WHETHER OR NOT THE JUDICIAL DETERMINATION THAT THREE YEARS IS UNREASONABLE AS A MATTER OF LAW VOIDS THE RESTRICTIVE COVENANT IN ITS ENTIRETY AND THE TRIAL JUDGE IS NOT FREE TO RE-WRITE THE RESTRICTION FOR TWO YEARS?

Appellant's Brief at 2.

We address appellant's fourth issue first. Appellant contends that the "non-competition" covenant is wholly unenforceable as it bears no reasonable relationship to the protection of ICA. The trial court, on the other hand, concluded that enforcement of the restrictive covenants was necessary to protect ICA's legitimate business interests. Based on the following reasoning, we cannot agree.

Initially, we note that we are guided by a rather limited standard of review of a trial court's grant of a temporary preliminary injunction,

[w]e will reverse only where we can confidently conclude that the trial court was palpably erroneous, misapplied the law or committed a manifest abuse of discretion. Schaeffer v. Frey, 403 Pa.Super. 560, 589 A.2d 752 (1991). If there are any apparently reasonable grounds for the trial court's decision, we must affirm it. City of Philadelphia v. District Council 33, American Federation of State, County and Municipal Employees, 525 Pa. 468, 581 A.2d 916, 919 (1990). We also emphasize, as we did in Schaeffer, supra, that a preliminary injunction is an extraordinary remedy to be utilized only where the plaintiff has established a clear right to relief. Schaeffer, 403 Pa.Super. at 565-566, 589 A.2d at 755.

Thermo-Guard, Inc. v. Cochran, 408 Pa.Super. 54, 63-64, 596 A.2d 188, 193 (1991).

In order for a "non-competition" covenant to be enforceable, it must relate to a contract for employment, be supported by adequate consideration and be reasonably limited in both time and territory. See Davis & Warde, Inc. v. Tripodi, 420 Pa.Super. 450, 454, 616 A.2d 1384, 1387 (1992), appeal denied, 536 Pa. 624, 637 A.2d 284 (1993); Bilec v. Auburn & Assoc., Inc. Pension Trust, 403 Pa.Super. 176, 183, 588 A.2d 538, 542 (1991), appeal denied, 528 Pa. 620, 597 A.2d 1150 (1991). More specifically, where a restrictive covenant has been entered into between an employer and its employee, our courts have permitted the enforcement of post-employment restraints only where they are ancillary to an employment relationship between the parties, the restrictions are reasonably necessary to protect the employer, and the restrictions are reasonably limited in duration and geographic extent. Sidco Paper Co. v....