Weber v. Tillman
| Decision Date | 08 March 1996 |
| Docket Number | No. 73202,73202 |
| Citation | 259 Kan. 457,913 P.2d 84 |
| Parties | , 64 USLW 2660, 11 IER Cases 837 Wallace M. WEBER, M.D., d/b/a Heartland Dermatology Center, Appellee, v. Donald K. TILLMAN, Jr., D.O., Appellant. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. Whether a restrictive covenant is contrary to public policy is a question of law, and an appellate court's review of that question is unlimited.
2. A noncompetition covenant ancillary to an employment contract is valid and enforceable if the restraint on competition is reasonable under the circumstances and not adverse to the public welfare.
3. A noncompetition covenant included in an employment contract is strictly construed against the employer.
4. Only a legitimate business interest may be protected by a noncompetition covenant. If the sole purpose of the covenant is to avoid ordinary competition, it is unreasonable and unenforceable.
5. The analysis of whether a noncompetition clause is reasonable evaluates these factors: (1) Does the covenant protect a legitimate business interest of the employer? (2) Does the covenant create an undue burden on the employee? (3) Is the covenant injurious to the public welfare? (4) Are the time and territorial limitations contained in the covenant reasonable? The determination of reasonableness is made on the particular facts and circumstances of each case.
6. It is the duty of the courts to sustain the legality of contracts in whole or in part when fairly entered into, if reasonably possible to do so, rather than to seek loopholes and technical legal grounds for defeating their intended purpose. The paramount public policy is that freedom to contract is not to be interfered with lightly.
7. Whether an ambiguity exists in a written instrument is a question of law to be decided by the court.
8. Regardless of the construction of a written contract made by the trial court, on appeal a contract may be construed and its legal effect determined by the appellate court.
9. An appellate court will not reweigh testimony or pass on the credibility of witnesses.
10. In reviewing the decision of a trial court, an appellate court must accept as true the evidence and all inferences to be drawn therefrom to support the findings of the trial court and must disregard any conflicting evidence or other inferences that might be drawn therefrom.
Appeal from Ellis District Court; Keith R. Willoughby, Judge. Affirmed.
John T. Bird, of Glassman, Bird & Braun, Hays, argued the cause, and Scott J. Miller Lee Turner, of Lee Turner, P.A., Great Bend, argued the cause and was on the brief, for appellee.
of the same firm, and Thomas M. Wasinger, Hays, were with him on the brief, for appellant.
Plaintiff employer and defendant employee, both dermatologists, entered into an employment contract which included a covenant not to compete should the employment cease for any reason. Employee appeals the trial court's enforcement of the noncompetition covenant, claiming that the noncompetition covenant is unenforceable as violative of public policy and that the trial court erred in calculating the liquidated damages of the noncompetition covenant. The appeal was transferred to this court pursuant to K.S.A. 20-3017.
Dr. Wallace M. Weber, a physician board certified in the field of dermatology doing business as Heartland Dermatology Center, has practiced in Hays, Great Bend, and Smith Center, Kansas since 1977. Prior to 1992, Dr. Weber was the only dermatologist practicing in northwest or north central Kansas. The next closest dermatologists were located in Salina and Hutchinson.
In 1991 Dr. Weber recruited Dr. Donald K. Tillman to join his practice. Dr. Tillman, a doctor of osteopathic medicine who is now board certified in the field of dermatology, was completing his preceptorship (similar to a residency) in Florida. They entered into an employment contract on September 9, 1991, and Dr. Tillman began practicing with Dr. Weber in July 1992. The contract was prepared for Dr. Weber by a Pennsylvania company. Neither party participated in drafting the contract.
The employment contract provided that the employment was "at will" and could be terminated by either Dr. Tillman or Dr. Weber upon 60 days' written notice. The contract also included a noncompetition covenant. Although the employment contract is not included in the record on appeal, the noncompetition clause was detailed by the trial court in its journal entry:
Dr. Weber's practice is (and was when Dr. Tillman's employment terminated) in Hays, Great Bend, and Smith Center, so the 30-mile radius referred to in the noncompetition covenant is 30 miles surrounding those cities. The covenant requires Dr. Tillman to refrain from practicing within that territory or, alternatively, he may practice in those areas upon payment to Dr. Weber of an amount equal to 6 months' salary and bonus.
In his first year with Dr. Weber, Dr. Tillman earned $120,000 annually plus a bonus calculated every 6 months. The bonus was based on Dr. Tillman's productivity and was determined according to a specified formula. For the first 6 months, Dr. Weber's accountant calculated Dr. Tillman's bonus to be $2,242.29. When Dr. Tillman disputed the calculation, Dr. Weber paid Dr. Tillman an additional $10,000, which the parties treated as a gift but which was shown as income for tax purposes. Dr. Tillman's bonus the second 6-month period was approximately $20,000. His second year of employment, Dr. Tillman's annual salary increased to $144,000 plus the bonus. For the third 6-month period Dr. Tillman received a bonus of $14,000.
On January 2, 1994, Dr. Tillman informed Dr. Weber that he was terminating his employment. Dr. Tillman continued to work for Heartland Dermatology until March 18, 1994, by agreement with Dr. Weber. Dr. Tillman was aware that the restrictive covenant would be effective when he left the employment of Heartland Dermatology Center. Nevertheless, upon leaving Dr. Weber's employment, Dr. Tillman immediately commenced to practice dermatology in Hays in violation of the restrictive covenant. Dr. Tillman did not pay liquidated damages under the alternative provision of the restrictive covenant.
Dr. Weber initiated this action to enjoin Dr. Tillman from practicing dermatology in the restricted areas or, alternatively, to require him to pay liquidated damages under the contract. Although there was testimony concerning Dr. Tillman's reasons for leaving the practice, the trial court found that the reasons were irrelevant because the employment could be terminated by either party for any reason.
At trial, Dr. Weber's accountant, using what the trial court found to be generally accepted accounting principles, determined the amount of 6 months' salary and bonus to be $82,226.32. The accountant testified that this amount was calculated by adding Dr. Tillman's bonuses, including the $10,000 paid when Dr. Tillman disputed the first 6-month bonus, over the 1 1/2 years of employment to determine the 6-month average of the bonuses plus Dr. Tillman's salary for the last 6 months of his employment ($144,000 annually).
Dr. Tillman's position at trial and on appeal is that the restrictive covenant is unenforceable as against public policy. He argues that the covenant is unenforceable and against public policy because (1) it is difficult to recruit new doctors to rural areas, (2) the dermatology needs of patients in northwest Kansas would be underserved if only Dr. Weber were practicing in those areas, and (3) Dr. Weber would hold a monopoly if he were the only practicing dermatologist in those areas. Dr. Tillman presented the testimony of Beth Bowerman, the Director of Medical Recruitment of Hays Medical Center, concerning the difficulty of recruiting new doctors to rural areas. She testified that using the most conservative model of evaluation, northwest Kansas needs three dermatologists and that the ability to serve those needs would be jeopardy if Dr. Tillman were enjoined from practicing in Hays.
The trial court found that Bowerman's testimony concerning the difficulty in recruiting new doctors to rural areas had no probative value in determining the effect of the restrictive covenant in the Dr. Weber-Dr. Tillman contract. The trial court concluded that the covenant not to compete was reasonable and enforceable and not against public policy. The court noted that the restrictive covenant is silent as to which 6-month period should be used to calculate the liquidated damages and as to the method of payment but found that a reasonable construction of the contract was a lump sum payment equal to the last 6 months of employment, plus all bonuses paid. The court granted a permanent injunction for a period of 2 years or, alternatively, ordered that Dr. Tillman pay Dr. Weber the sum of $82,226.32 within 10 days. Dr. Tillman timely appealed, and the appeal was transferred to this court on Dr. Tillman's motion.
The primary dispute in this appeal is whether the restrictive covenant is contrary to public policy and therefore unenforceable. The parties disagree as to this court...
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