Redmond v. Royal Ford, Inc., 35365

• Decision Date: 21 November 1979
• Docket Number: No. 35365,35365
• Citation: 261 S.E.2d 585,244 Ga. 711
• Parties: , 1980-1 Trade Cases P 63,054 REDMOND v. ROYAL FORD, INC. et al.
• Court: Georgia Supreme Court

Page 585

261 S.E.2d 585

244 Ga. 711, 1980-1 Trade Cases P 63,054

REDMOND v. ROYAL FORD, INC. et al.

No. 35365.

Supreme Court of Georgia.

Argued Sept. 19, 1979.

Decided Oct. 23, 1979.

Rehearing Denied Nov. 21, 1979.

James C. Brim, Jr., Camilla, for appellant.

Twitty & Twitty, Frank S. Twitty, Jr., Camilla, for appellees.

PER CURIAM.

This appeal contests the validity of a covenant not to compete.

Appellant was employed in July, 1974, by oral agreement as a salesman for Royal Ford, Inc., a Ford automobile dealership. Royal Ford, Inc., acted through Richard Royal, its President and sole stockholder. Royal agreed he would at a future time sell appellant some stock in the company if his work was satisfactory. In April, 1975, a written contract was entered into whereby appellant was hired in an executive capacity and sold a 10% Stock interest in Royal on deferred payments. It provided that in the event the employment was terminated, Royal had the option to repurchase the stock at 20% Over book value. The employment was month to month. The provision specifying the salary was left blank. Appellant was elected vice president of Royal. The contract contained this covenant: "Employee agrees that in addition to any other limitation for a period of five years after the termination of his employment hereunder, except a termination caused by employer in violation of the terms hereof and unless otherwise specified herein, he will not directly or indirectly engage in or in any manner be connected with or employed by any person, firm or corporation in competition with employer or engaged in the automobile sales and services, within a radius of 50 miles of Camilla, Georgia."

Appellant terminated his employment in January, 1977. Royal repurchased his stock. In January, 1979, appellant accepted employment with another Ford dealership with an option to purchase which is located nine miles from Royal Ford, Inc. The trial court enjoined appellant from "performing any services relating to sales, directly or indirectly, general management, or executive responsibility, either as owner, sole or part, or employee, which is the same type of service he was performing while associated with plaintiff as an employee, officer, and part owner, which is the same and only type of service contemplated to be covered by the covenant not to compete."

If the covenant here is ancillary to an employment contract, that portion of the covenant providing that the employee ". . . will not directly or indirectly engage in or in any manner be connected with or employed by any other person in competition with employer" renders the covenant unenforceable. Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 236 S.E.2d 265 (1977).

On the other hand, if the covenant is ancillary to the sale of stock in a business, the employee may be enjoined from competing to the extent that it is found essential, by clear and convincing evidence, to protect the purchaser, despite the overbreadth of the covenant. Jenkins v. Jenkins Irrigation, Inc., 244 Ga. 95, 259 S.E.2d 47 (1979).

In short, the court may not "blue-pencil" a covenant ancillary to an employment contract but may "blue-pencil" it where ancillary to the sale of a business.

Clearly this contract was an employment contract. Thus, the question is whether the inclusion of the stock option removes it from the employment contract category and puts it in the sale of business category.

Hood v. Legg, 160 Ga. 620, 128 S.E. 891 (1925), is one of the leading cases in Georgia involving a covenant against competition ancillary to the sale of a business. There the sellers sold their stock in a brick manufacturing business and covenanted not to compete in the manufacture and sale of brick or other clay products for 10 years within 300 miles. The provision as to "other clay products" was found to be unenforceable but the remainder of the covenant was enforced. The court reasoned that in order to protect the purchaser's acquisition of the goodwill of the business, it was necessary to enforce the covenant against the seller.

On the other hand, Rakestraw v. Lanier, 104 Ga. 188, 30 S.E. 735 (1898), is one of the leading cases involving a covenant against competition ancillary to an employment contract. In fact, however, the covenant against competition in Rakestraw was contained in a partnership agreement by which two doctors agreed to practice medicine together. The covenant there provided that if the partnership dissolved, Rakestraw would not practice medicine, surgery or obstetrics within 15 miles of the town of Oliver. The covenant was unlimited as to time and would continue even after Lanier's death or retirement. It was found invalid as written and unenforceable (104 Ga. at 203, 30 S.E. 735). The court...