May v. Young

• Decision Date: 01 November 1938
• Citation: 125 Conn. 1,2 A.2d 385
• Court: Connecticut Supreme Court
• Parties: MAY v. YOUNG.

2 A.2d 385

125 Conn. 1

MAY v. YOUNG.

Supreme Court of Errors of Connecticut.

November 1, 1938

Appeal from Superior Court, New Haven County; Edwin C. Dickenson Judge.

Suit by George S. May against Emerson K. Young for an injunction restraining the defendant from employment by the client of plaintiff and for damages, brought to superior court and tried to the court. From a judgment for the defendant plaintiff appeals.

Error and judgment directed for plaintiff.

Charles R. Covert, of Stamford, for appellant.

Maurice T. Healey, Jr., and William J. Larkin, Jr., both of Waterbury, for appellee.

Argued before MALTBIE, C.J., and HINMAN, AVERY, BROWN, and JENNINGS, JJ.

HINMAN, Judge.

The plaintiff is an industrial engineering firm engaged in the business of installing systems covering sales and administrative expenses, budgets, accounting and cost methods, overhead rates, factory clerical, direct and indirect labor, production planning and scheduling inventories and other cost elements. It was organized in 1925 and has since served seventeen hundred business firms in forty-four States and in Canada. Its systems are installed by a specially qualified and trained personnel, and a particular job may last one month or many depending on the extent of the work undertaken. It has developed solutions of particular industrial problems which are preserved in its confidential records, as are schedules of its rates and charges, a list of the clients served and a list of prospective clients being contacted. The defendant entered into the employ of the plaintiff on August 1st, 1929, and continued therein until July 1st, 1936, and served the plaintiff in cities west of the Mississippi river. Confidential data, records and information possessed by the plaintiff were made available to the defendant and used by him in the course of his employment.

On July 1st, 1935, the plaintiff and the defendant entered into a written contract setting forth that the plaintiff used in its business certain data and information and certain trade secrets which would be communicated to the defendant by virtue of his employment and which the plaintiff desired to protect and preserve for its own use, and by which the defendant agreed to serve the plaintiff and it agreed to employ him indefinitely so long as his services were satisfactory but reserved the right to terminate the agreement at any time upon seven days notice in writing. The contract included an agreement by the defendant that he would not, ‘ while this contract remains in effect or at any time within two years thereafter, * * * (2) enter into the employ of any client of the [plaintiff],’ and that in case of violation of this or other related provisions the plaintiff shall be entitled to an injunction and ‘ as liquidated damages' the sum of $10,000. The defendant thereafter worked under that contract until about July 1st, 1936, when his employment was terminated by the plaintiff in accordance with the provisions of the contract.

In 1932 the defendant, as an employee of the plaintiff, had performed services, including production schedules, for the Waterbury Buckle Company and in April, 1936, had solicited that company for further work to be done later in 1938 by the plaintiff. Inefficiencies existed in the production of the Waterbury Buckle Company and it was desirous of securing assistance in correcting them, and on December 22d, 1936, the defendant entered into its employ as a production manager, his duties involving the speeding up and increasing of production, services similar to which were included in those performed by the plaintiff in its business. The Waterbury Buckle Company had formed no intention of employing the plaintiff at any time subsequent to 1932, but the finding that in December, 1936, it was a client of the plaintiff within the purview of the contract between the plaintiff and the defendant is not questioned.

From the facts found, including those above stated with corrections to which the plaintiff is entitled, the trial court concluded, correctly, that the only provision of the contract which the defendant violated was that forbidding him to enter into the employ of any client of the plaintiff within two years after the termination of his employment by the plaintiff. The principal question on this appeal concerns the validity of the further conclusion that this provision ‘ is contrary to public policy, void, and if enforced against the defendant would impose undue hardship upon him.’

A covenant restricting the activities of an employee during or after the termination of his present employment, in order to be valid and enforceable must be partial, or restricted in its operation either as to time or place, on some good consideration, and ‘ must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public.’ Cook v. Johnson, 47 Conn. 175, 176, 36 Am.Rep. 64. Of the principal considerations affecting the validity of restrictive contracts on grounds of public policy, one is injury to the public by being deprived of the restricted party's industry or services, the other the injury to the party himself by being precluded from pursuing his occupation and thus being prevented from supporting himself and family. ‘ But if neither of these evils ensue and if the contract is founded on a valid consideration and a reasonable ground of benefit to the other party, it is free from objection, and may be enforced.’ Oregon Steam Navigation Co. v. Winsor, 20 Wall. 64, 87 U.S. 64, 68, 22 L.Ed. 315. The restriction here involved being only from engaging with clients of the plaintiff, leaving open to the defendant all other opportunities for employment, cannot be held so to involve either of these consequences as to invalidate it on grounds of public policy.

If such a restriction is to be upheld and enforced it must be reasonably necessary for the fair protection of the employer's business, good will or rights and not unreasonably restrict the rights of the employee, due regard being had to the interests of the public, and the circumstances and conditions under which the contract is to be performed. Roessler v. Burwell, 119 Conn. 289, 294, 176 A. 126; Samuel Stores, Inc., v. Abrams, 94 Conn. 248, 253, 108 A. 541, 9 A.L.R. 1450; Styles v. Lyon, 87 Conn. 23, 29, 86 A. 564; Dyar Sales & Machinery Co. v. Bleiler, 106 Vt. 425, 434,174 A. 27; Sherman v. Pfefferkorn, 241 Mass. 468, 474, 135 N.E. 568; 9 A.L.R. 1468; 52 A.L.R. 1364; 67 A.L.R. 1004; 98 A.L.R. 966. A bargain by an employee not to compete with his employer during the term of the employment or thereafter ‘ within such territory and during such time as may be reasonably necessary for the protection of the employer * * *, without imposing undue hardship on the employee,’ does not impose unreasonable restraint of trade unless effecting, or forming part of a plan to effect, a monopoly. Restatement, Contracts, § 516(f).

Agreements by which an employee undertakes not to enter a competing business or employment on leaving his employer's service are reasonably necessary for the protection of the employer's business. Under such agreements parties obtain employment on certain terms which prevent them, on leaving that employment, from making use of knowledge which they have acquired during that employment to the detriment of their employer. Middleton v. Brown, 47 L.J.Ch. 411, 412; 13 C.J. 485. When the character of the business and the nature of the employment are such that the employer requires protection for his established business against competitive activities by one who has become familiar with it...