Evans Laboratories, Inc. v. Melder

562 S.W.2d 62, 262 Ark. 868, 1978 Ark. LEXIS 1833

• Court: Supreme Court of Arkansas
• Decided: February 27, 1978
• Docket: 77-185
• Status: Published

Opinions

Frank Holt, Justice.

Pursuant to restrictive covenants contained in an employment contract, the appellant sought to enjoin the appellees, its former employees, from “accepting, soliciting, diverting or appropriating or continuing to service” any former customers of appellant’s which were serviced by the appellees during their tenure of employment with appellant. After a hearing, a preliminary injunction was issued which prohibited appellees’ solicitation of former customers but not appellees’ acceptance of business from them if without solicitation. After an evidentiary hearing, the court found the employment contracts did not relate to the sale of a business; no trade secrets or confidential information were involved; the geographical limitations were unreasonable and incapable of reasonably definite location; and the court then concluded that the restrictive covenants were invalid and dissolved the previous injunction. We first consider appellant’s assertion that “[t]he restrictive covenants contained within the contracts are valid and enforceable under the laws of the State of Arkansas, said covenants being reasonably related to the needs of the appellant and restrictive only of competition which is unfair and not of competition which is fair.”

Appellant, which is in the termite and pest control business, employed appellee Melder as its branch manager of their McGehee office. Appellee Cingolani worked as a routeman servicing customers in that area. Appellees’ employment contracts were for an unspecified length of time and could be terminated by either party upon ten days’ notice. The contract provided that acceptance of solicitation of business from appellant’s customers, serviced by appellees while appellant’s employees, was prohibited for a period of two years after the termination of appellees’ employment. Appellant concedes that this provision is inapplicable to appellee Melder, because, as a branch manager, he serviced no former customers. Appellees left appellant’s employment and went into business as the Delta Pest Control. Since that time, appellant lost approximately 278 out of the 307 customers formerly serviced by appellee Cingolani on his route. However, Cingolani stated that only about 125 to 150, or one-half, of the customers presently serviced by him were formerly on his route while working for appellant. There is no proof of solicitation by either of the appellees. In fact, the proof is to the contrary. Appellant correctly states the central issue to be resolved on appeal is the validity of the restrictive covenants.

The validity of a restrictive covenant not to compete in an employment contract depends upon the facts and circumstances of the particular case. United Ins. Agency, Inc. v. Martin, 258 Ark. 916, 529 S.W. 2d 871 (1975); and McLeod v. Meyer, 237 Ark. 173, 372 S.W. 2d 220 (1963). Further, it is well established that we are reluctant to uphold employment contracts which have negative provisions, as here, with reference to future employment elsewhere by the employee. McLeod v. Meyer, supra.

Appellees argue that the covenant in question here is invalid because, due to the two year length of the prohibition and the prohibition on acceptance as well as solicitation, it constitutes a restraint of trade which is void as against public policy. Even so, appellant asserts that the covenant would only have the effect of prohibiting appellee Cingolani from soliciting or servicing customers whom he formerly serviced for appellant. Other Delta employees could do the actual servicing of those former customers. Appellant argues this prohibition is necessary because the relationship between the routeman and the customer is the most important element in developing and maintaining business in this industry. It appears that no trade secrets are involved.

In determining whether or not a restraint of trade imposed by a contract is reasonable, we consider “whether it is such only as to afford a fair protection to the interests of the party in whose favor it is given, and not so large as to interfere with the interests of the public.” Orkin Exterminating Co. v. Murrell, 212 Ark. 449, 206 S.W. 2d 185 (1947); and Edgar Lumber Co. v. Cornie Stave Co., 95 Ark. 449, 130 S.W. 452 (1910). Here the record indicates that when appellant’s prior customers defected from it to Delta, the newly organized firm, it was not due to any solicitation on appellee Cingolani’s part but due to their satisfaction with his prior servicing.

In the circumstances we are of the view that the provision which prohibits Cingolani from accepting the requests of appellant’s former customers, whom he formerly serviced, is undue interference with the interests of the public’s right to the availability of a serviceman it prefers to use. In other words, it results in an unreasonable restraint of trade. We deem it unnecsssary to discuss appellant’s contention that the geographic restrictions in the contract are valid.

Affirmed.

Fogleman, J., dissents. Hickman, J., concurs.