American Family Life Assurance Co. v. Tazelaar

468 N.E.2d 497, 127 Ill. App. 3d 112, 82 Ill. Dec. 235, 1984 Ill. App. LEXIS 2255
CourtAppellate Court of Illinois
DecidedAugust 28, 1984
Docket84-586
StatusPublished
Cited by1 cases

This text of 468 N.E.2d 497 (American Family Life Assurance Co. v. Tazelaar) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Family Life Assurance Co. v. Tazelaar, 468 N.E.2d 497, 127 Ill. App. 3d 112, 82 Ill. Dec. 235, 1984 Ill. App. LEXIS 2255 (Ill. Ct. App. 1984).

Opinion

JUSTICE DOWNING

delivered the opinion of the court:

This appeal questions the validity, based upon Georgia law, of a covenant not to compete contained in an employment agreement.

American Family Life Assurance Company (American Family), plaintiff, filed an action to enjoin defendants, six of its former employees, from (1) inducing other salespersons to terminate their agreements with plaintiff, (2) inducing policyholders to relinquish their policies written with plaintiff, (3) divulging the names of policyholders to plaintiffs competitors, and (4) making available to competitors information and material acquired from plaintiff.

Defendants, as salespersons for plaintiff, signed agreements with plaintiff promising to refrain from doing these acts. The pertinent provisions of the agreements were:

“PARAGRAPH SEVEN: Covenant Not To Compete
(a) During the term of this agreement and for a period of two (2) years after the termination of this Agreement, the Associate agrees that the Associate shall not, within the geographic area where the Associate has sold and serviced policies for American Family, engage in any of the following:
(1) Attempt to induce other Associates or sales agents of American Family to terminate their agreements with American Family or to become contracted or associated with another insurance company.
(2) Attempt to induce policyholders or accounts of American Family to relinquish their policies.
(3) Divulge the names of American Family policyholders, accounts, or agents to any competitor or potential competitor of American Family.
(4) Make available any information or materials acquired from American Family to any competitor or potential competitor of American Family.
(5) Sell or service an accident and health insurance policy for any other company which competes with any of the policies which the Associate has sold for American.
(6) Become a partner, associate, affiliate, employee or independent contractor with any person or company which sells or services accident and health insurance policies which compete with policies which the Associate has sold for American Family.”

The agreement also contained (i) a provision that it is governed by the laws of the State of Georgia, and (ii) a severability clause that if any paragraph or subparagraph be held invalid, illegal or unenforceable, such will not affect any other provision of the agreement.

The trial court entered a temporary restraining order. Defendants filed a verified answer to the complaint, the parties filed memoranda of law, and oral arguments followed. The trial court, in considering paragraph seven, held (1) the law does not permit the blue-penciling of restrictive covenants in employment contracts and that the covenant must stand or fall as a whole, and (2) if any provision is unenforceable, the entire clause is unenforceable. The court found that subparagraph 6 of paragraph seven is overly broad and unenforceable. Therefore, no part of paragraph seven could be enforced. Finding that plaintiff failed to demonstrate that it was likely to prevail on the merits, the trial court denied plaintiff’s motion for a preliminary injunction.

We are asked (1) whether nondisclosure covenants, as part of a covenant not to compete, are valid and enforceable when the trial court determines the covenant not to compete is not enforceable, and (2) whether plaintiff was entitled to enjoin defendants from attempting to induce plaintiff’s policyholders to relinquish their policies.

I

The agreement provides, and the parties agree, that Georgia law applies. In Richard P. Rita Personnel Services International, Inc. v. Kot (1972), 229 Ga. 314, 315, 191 S.E.2d 79, 80, a franchise agreement contained a covenant in one paragraph, whereby Kot, the franchisee, agreed "*** that for a period of two years after the termination of the franchise agreement that he would not compete with Rita in Fulton, Cobb and De Kalb Counties (Georgia) or in any territorial areas in which a franchise has been granted by Rita.” Rita sought to enforce only that part of the covenant applicable to the three designated counties and urged that Georgia courts adopt the “blue-pencil theory of severability,” deleting the words “or in any territorial area in which a franchise has been granted by Rita.” Based on previous decisions, the Georgia Supreme Court held that the restrictive covenant, when read in its entirety, is unenforceable; further, the court declined to adopt the “blue-pencil theory of severability.” In other words, the court refused to sever from the one paragraph that part of the covenant which made the entire covenant unenforceable, and then hold enforceable that which remains after severance.

Durham v. Stand-By Labor of Georgia, Inc. (1973), 230 Ga. 558, 198 S.E.2d 145, considered a post-employment restriction in an employee’s contract. Paragraph 11, a general noncompetition provision, provided that upon termination of employment, for a period of one year, the employee would not engage in any competition activity within (a) a radius of 50 miles of Atlanta, Georgia, and (b) a radius of 50 miles of any city in which the employer, or any affiliated company, is operating at the time employment is terminated. Paragraph 12 was a specific one-year nondisclosure of customer information provision. A specific severability clause was included. The court held that the non-competition provision as a whole was overly broad and unreasonable in restraint of trade. The court noted Rita and observed that the result in Rita was reached despite a specific contractual provision that its illegal clauses were severable. However, as to the nondisclosure provision, paragraph 12, the court held it was not void as a matter of law, and its reasonableness must be established at trial.

In Howard Schultz & Associates of the Southeast, Inc. v. Broniec (1977), 239 Ga. 181, 236 S.E.2d 265, a covenant not to compete was held to be defective as overly broad, and a covenant against disclosure of information was unenforceable as it contained no time limitation. In Nasco, Inc. v. Gimbert (1977), 239 Ga. 675, 238 S.E.2d 368, the supreme court held that an employment contract’s nondisclosure covenant was unreasonably broad and therefore unenforceable.

Uni-Worth Enterprises, Inc. v. Wilson (1979), 244 Ga. 636, 261 S.E.2d 572, involved former officers of the corporation who sought a declaratory judgment that restrictive covenants in their employment contracts were void and unenforceable.

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Related

American Family Life Assurance Co. v. Tazelaar
482 N.E.2d 1072 (Appellate Court of Illinois, 1985)

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Bluebook (online)
468 N.E.2d 497, 127 Ill. App. 3d 112, 82 Ill. Dec. 235, 1984 Ill. App. LEXIS 2255, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-family-life-assurance-co-v-tazelaar-illappct-1984.