Tasco, Inc. v. Winkel

• Decision Date: 25 July 1979
• Docket Number: No. 62616,62616
• Citation: 281 N.W.2d 280
• Parties: TASCO, INC., Appellant, v. Eldon WINKEL, Appellee.
• Court: Iowa Supreme Court

Page 280

281 N.W.2d 280

TASCO, INC., Appellant, v. Eldon WINKEL, Appellee.

No. 62616.

Supreme Court of Iowa.

July 25, 1979.

C. Carleton Frederici, Patricia A. Shoff, and Steven L. Nelson of Thoma, Schoenthal, Davis, Hockenberg & Wine, Des Moines, for appellant.

David J. Price of Price, Correll & Sheerer, Cedar Falls, for appellee.

Considered by LeGRAND, P. J., and REES, HARRIS, ALLBEE, and McGIVERIN, JJ.

LeGRAND, Justice.

This matter is here for determination as to whether the trial court was right in granting defendant a summary judgment on plaintiff's claim for breach of an employment contract containing a covenant not to compete. We reverse and remand for trial on the merits.

Defendant was an employee of Tasco. Five years after he was first employed by that corporation, he signed an agreement he would not compete with his employer anywhere in the United States for a period of one year after leaving its employ. He allegedly violated this provision by associating with a competitor doing business in the same locality immediately after leaving Tasco. This suit followed, asking both injunctive relief and damages.

The covenant in question is here set out:

For a period of 12 months after termination of the employment of the undersigned Employee, the Employee will not within the United States of America directly or indirectly own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business similar to the type of business conducted by Tasco, Inc. at the time of the termination of employment of the Employee.

Defendant left Tasco's employ on April 15, 1978. On April 17, 1978, he began new employment with Duane Wessels, Inc. Tasco's business was located in Shell Rock. Duane Wessels, Inc. operated out of Cedar Falls just 20 miles away. Duane Wessels had been president of Tasco until March 16, 1978. The ultimate question is whether the covenant set out above is valid and enforceable. We have recognized the validity of such a covenant "if it is reasonably necessary for the protection of the employer's business and is not unreasonably restrictive of employee's rights nor prejudicial to the public interest." Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 369 (Iowa 1971).

Defendant filed a motion for summary judgment, alleging "there is no real issue as to the facts and that hence as a matter of law the 'agreement' is not enforceable because of the oppressive restrictions therein and the bad faith involved in its execution."

Both sides submitted affidavits, and additional testimony was taken at the hearing on the motion. The trial court sustained the motion and we quote from the ruling:

In the present case there is a basis to conclude that the employer, Tasco, showed bad faith by requiring the defendant to sign such a broad restrictive covenant not to compete. This case can be compared with the Baker case. In both cases the employers have wide, but not nationwide, sales. The employer in the Baker case provided services in at least thirteen states . . . . Tasco has sales in over twenty states . . . . More important is the fact that the restrictive covenants in the Baker case and in the present case are very similar. The covenant in this case is even broader than the one found to be unconscionable in the Baker case. The Tasco covenant does not merely prohibit the defendant from working for a similar business in towns and cities where the employer did business at the time of termination as was the case in Baker, for the Tasco covenant prohibits the defendant from working for a similar business anywhere in the United States regardless of whether the employer ever made any sales in that area or not. The Tasco covenant appears to fall precisely within the rule in Baker which prohibits employers from placing the broadest possible restrictions on employees. The plaintiff argues that the covenant was not prompted by bad faith but by sound business judgment, citing the fact that nine employees had left Tasco and eight of them had gone to work for Wessels. This argument does support the need of some kind of covenant but it does not suggest any legitimate business interest for a broad restrictive covenant covering the entire United States.

It is apparent the trial court relied to a great extent on our decision in Baker v. Starkey, 259 Iowa 480, 144 N.W.2d 889, (1966). However, we point out Baker was decided on its merits after a full trial, not on a summary judgment motion. It is no authority for granting the motion in the present case.

The trial court's conclusion that the contract was unconscionable and therefore...