Manpower of Guilford County, Inc. v. Hedgecock

257 S.E.2d 109, 42 N.C. App. 515, 1979 N.C. App. LEXIS 2842

• Court: Court of Appeals of North Carolina
• Decided: August 7, 1979
• Docket: 7818SC858
• Status: Published

Opinion

MORRIS, Chief Judge.

Plaintiff has assigned error to the denial of its motion for a preliminary injunction and to the entry of summary judgment in behalf of both defendants. It is clear from the record that the basis of the trial court’s ruling was its conclusion that the corporate employer’s signature on the agreement not to compete was insufficient, and that, therefore, plaintiff could not enforce the covenants against competition.

Plaintiff asserts that the issue of the signature is the only question for review because of the trial court’s opinion, expressed at the hearing, that the agreement was otherwise valid and enforceable. Plaintiff’s argument on appeal is addressed primarily to the sufficiency of the signatures. Although we agree with plaintiff, as pointed out below, that the employment contract and its ancillary covenants against competition are not infirm because of the requisite signatures, the sufficiency of the signatures is not the only question before us. We must consider each challenge to the enforceability of the agreement. A correct ruling by a trial court will not be set aside merely because the court gives a wrong or insufficient reason for its ruling. See e.g., In re Will of Pendergrass, 251 N.C. 737, 112 S.E. 2d 562 (1960); Temple v. Temple, 246 N.C. 334, 98 S.E. 2d 314 (1957); Reese v. Carson, 3 N.C. App. 99, 164 S.E. 2d 99 (1968). The ruling must be upheld if it is correct upon any theory of law.

Plaintiff is correct in its contention that plaintiff’s signature is not necessary to render enforceable the covenant not to compete. The sufficiency of the writing is controlled by G.S. 75-4. Its language is clear and unambiguous. Subject to the general restrictions as to reasonableness of ancillary restraints on competition, G.S. 75-4 establishes that contracts or agreements limiting the rights of persons to do business in this State may be enforeceable if put in writing “duly signed by the party who agrees not to enter into any such business within such territory”. G.S. 75-4 is consistent with the other “statute of frauds” provisions in our law which require only that the writing be “signed by the party charged therewith”, G.S. 22-1 (29 Charles II (1676), ch. 3, sec. 4), or require that the writing be signed by “the party against whom enforcement is sought”, G.S. 25-2-201(1) (Uniform Commercial Code). Our holding is consistent with the general view with respect to the necessary signatures to satisfy the Statute of Frauds. See generally 72 Am. Jur. 2d, Statute of Frauds § 364. It is not necessary that the person seeking enforcement of the terms required to be in writing also sign the writing. Lumber Co. v. Corey, 140 N.C. 462, 53 S.E. 300 (1906). The reasoning for this rule was stated in the early case of Mizell v. Burnett, 49 N.C. 249 (1857).

“Common justice, and the general principles of law, require that there shall be a mutuality in contracts; that is, if one party is bound the other ought to be. But there may be exceptions. Although it is a maxim that a contract is never binding unless there be consideration, yet, there is a distinction between a consideration and the mutuality of contracts in reference to the obligation thereof, and the fact that by some other principle of law, or the provisions of a statute, one party has it in his power- to avoid the obligation, although it suggests a very forcible reason for not entering into a one-sided contract, does not necessarily have the effect of making such contract void as to both parties.” Id. at 253.

Indeed, in this situation there is no concern over the absence of mutuality. Nor do we find validity to the argument that the employment contract is not a valid contract because not properly signed by a corporate officer. A contract of employment generally need not be in writing in North Carolina to be enforceable. Because of our conclusion that the covenant not to compete satisfies the requirements of G.S. 75-4, we now direct our inquiry to determine whether the covenants are otherwise valid and enforceable as against each defendant.

Defendants contend that the covenant not to compete is unenforceable by plaintiff for three reasons. First, they argue, the agreement sued upon is, on its face, between Hedgecock and Manpower, Inc., a legal entity separate from Manpower of Guilford County, Inc., and therefore is not enforceable by this plaintiff. However, the evidence at the hearing was uncontradicted that “Manpower, Inc.” was used by plaintiff as being synonymous with “Manpower of Guilford County, Inc.” and also that “Manpower, Inc.” was the name used by plaintiff under the terms of its licensing agreement. The trial court concluded, and we so hold, that for purposes of enforcing this contract Manpower, Inc. and Manpower of Guilford County, Inc. are one and the same. Hedgecock had been employed by plaintiff for some time prior to entering into the employment agreement and no doubt knew that his contract was with Manpower of Guilford County, Inc. Defendants’ second argument challenging the validity of the covenant not to compete, which addresses the sufficiency of the signatures to the agreement, has, of course, been resolved against defendants. Finally, however, we must consider the validity of the time and territory restrictions on competition imposed by the agreement.

When the nature of employment such as in the instant case is such that the employee has personal contact with the patrons and customers of an employer, or where the employee acquires valuable information as to the nature and character of the business and the names of patrons or customers, thereby enabling him to take advantage of such knowledge and to compete unfairly with a former employer, equity may be interposed to prevent the breach of a covenant not to compete which is reasonable as to time and territory. Greene Co. v. Arnold, 266 N.C. 85, 145 S.E. 2d 304 (1965); Exterminating Co. v. Griffin and Exterminating Co. v. Jones, 258 N.C. 179, 128 S.E. 2d 139 (1962). The restrictions, however, must be no wider in scope than is necessary to protect the business of the employer. Comfort Spring Corp. v. Burroughs, 217 N.C. 658, 9 S.E. 2d 473 (1940). See generally Annot., 41 A.L.R. 2d 15 (1955); Annot., 43 A.L.R. 2d 94 (1955).

A major consideration in determining the reasonableness of restrictions as to time and territory relates to the type of position occupied by the employee, and the skills and/or knowledge obtained by the employee while under employment. The individual defendant in this case occupied a managerial position which necessitated constant contact with customers of the plaintiff. Our courts have attached significance to the fact of an employee’s managerial position. The employee’s opportunity to acquire intimate knowledge of the business and to develop personal association with customers is an important consideration. Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154 (1930). See also Sonotone Corp. v. Baldwin, 227 N.C. 387, 42 S.E. 2d 352 (1947); Exter minating Co. v. Wilson, 227 N.C. 96, 40 S.E. 2d 696 (1946). One of the single most important assets of a business is its clientele, and protection of established customers is a valid interest of the employer. See generally 43 A.L.R. 2d at 162; 41 A.L.R. 2d at 71. Thus, a time limitation contained in a covenant not to compete should remain valid and enforceable if its duration can be justified on the ground that it is reasonably necessary to prevent a loss of customers to the employee or a subsequent employer. See generally 41 A.L.R. 2d at 71. Furthermore, in determining the reasonableness of territorial restrictions, when the primary concern is the employee’s knowledge of customers, the territory should only be limited to areas in which the employee made contacts during the period of his employment. See Associates, Inc. v. Taylor, 29 N.C. App. 679, 225 S.E. 2d 602 (1976), cert. denied, 290 N.C. 659, 228 S.E. 2d 451 (1976).

In our opinion, Hedgecock’s agreement not to compete with plaintiff “for a one (1) year period after termination [of employment] (such period not to include any period(s) of violation or period(s) of time required for litigation to enforce the covenants . . .)” is reasonable. Essentially, the restriction is for a period of one year unless Hedgecock is determined to have violated the covenant. In that case, construing the restriction strictly against its draftsman, as we must do with contracts of this nature, the practical result is that the restriction continues for a maximum of one year after a breach of the covenant ceases. The time required for litigation to enforce the covenants necessarily terminates upon enforcement of a decree prohibiting a continued violation of the covenant. The result is that plaintiff is entitled to one continuous year without competition from plaintiff. This is not unreasonable. Indeed, periods far exceeding one year have been recognized as reasonable in cases where the employee has had extensive customer contact. See Machinery Co. v. Milholen, 27 N.C. App. 678, 220 S.E. 2d 190 (1975); Sales & Service v. Williams, 22 N.C. App. 410, 206 S.E. 2d 745 (1974). See also Greene Co. v. Arnold, supra (4 years); Welcome Wagon, Inc. v. Pender, 255 N.C. 244, 120 S.E. 2d 739 (1961) (5 years); Exterminating Co. v. Wilson, supra (2 years); Moskin Bros. v. Swartzberg, supra (2 years).

Despite our conclusion that the covenant against competition is valid with respect to the time limitation, we are compelled to find that the restriction exceeds reasonable territorial limitations. The covenant provided that Hedgecock was “not to engage in a business similar or competitive to that of Manpower, Inc. and/or its affiliates and/or licensees, within a 25 mile radius of any city where there is a Manpower office or Manpower licensed business.” (Emphasis added.) A restriction as to territory is reasonable only to the extent it protects the legitimate interests of the employer in maintaining his customers. This restriction potentially covers a 25-mile radius of any city in the country. Hedgecock’s employer, Manpower of Guilford County, Inc., however, only has offices in Greensboro, High Point, and Winston-Salem. Manpower of Guilford County, Inc., has no legitimate interest in preventing Hedgecock from competing with other Manpower franchisees in other cities or states. Although Manpower, Inc., the franchisor, may have a legitimate right to prohibit its franchisees from competing with it or its affiliates throughout the country, see generally Annot., 50 A.L.R. 2d 746 (1973), it is not a party to this lawsuit seeking to enforce the territorial restrictions. We express no opinion concerning whether the covenant restrictions concerning territory would be reasonable if the franchisor, Manpower, Inc., were seeking to enforce the covenant in its capacity as perhaps a third party beneficiary of the contract. We reserve our consideration of this question until it properly is brought before this Court. Thus, we conclude that the territorial restriction imposed by plaintiff was more extensive than necessary to secure his business or goodwill. Compare Paper Co. v. McAllister, 253 N.C. 529, 117 S.E. 2d 431 (1960); Comfort Spring Corp. v. Burroughs, supra. Although the restrictions might withstand scrutiny were they limited to the region in which plaintiff seeks to enjoin defendants (25 miles of Greensboro and High Point), this Court cannot in the absence of clearly severable territorial divisions, enforce the restrictions only insofar as they are reasonable. Welcome Wagon, Inc. v. Pender, supra; Noe v. McDevitt, 228 N.C. 242, 45 S.E. 2d 121 (1947).

In light of our conclusion that the trial court properly entered summary judgment for defendants thus resolving against plaintiff the action for a permanent injunction and damages, we find it unnecessary to consider the assignment of error directed to the denial of the plaintiff’s motion for a temporary injunction.

Affirmed.

Judges HEDRICK and Webb concur.