National Employment Service Corp. v. Olsten Staffing Service, Inc.

761 A.2d 401, 145 N.H. 158, 17 I.E.R. Cas. (BNA) 1885, 2000 N.H. LEXIS 39
CourtSupreme Court of New Hampshire
DecidedAugust 15, 2000
DocketNo. 98-701
StatusPublished
Cited by32 cases

This text of 761 A.2d 401 (National Employment Service Corp. v. Olsten Staffing Service, Inc.) is published on Counsel Stack Legal Research, covering Supreme Court of New Hampshire primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
National Employment Service Corp. v. Olsten Staffing Service, Inc., 761 A.2d 401, 145 N.H. 158, 17 I.E.R. Cas. (BNA) 1885, 2000 N.H. LEXIS 39 (N.H. 2000).

Opinion

GROFF, J.

The plaintiff, National Employment Service Corporation (National), alleged that the defendant, Olsten Staffing Service, [159]*159Inc. (Olsten), violated a restrictive covenant in an employment contract between National and its employees and intentionally interfered with National’s contractual relationship with its employees. Following a jury trial in the Superior Court (Galway, J.), National was awarded damages in excess of $20,000. On appeal, Olsten argues that the trial court erred in: (1) determining that the restrictive covenant was reasonable and enforceable; (2) failing to direct a verdict in its favor on National’s claim of intentional interference with contractual relations; and (8) refusing to overturn jury verdicts that were conclusively against the weight of the evidence. We reverse.

National and Olsten are in the business of supplying temporary employees to industry. Prior to August 1994, National, Olsten, and several other temporary employment agencies supplied light industrial laborers to Watts Fluid Air Corporation (Watts) at its manufacturing facility in Kittery, Maine. National required its employees to sign employment contracts prior to commencing employment containing a restrictive covenant, which prohibited them from accepting “employment directly or indirectly at client company for a period of ninety working days following the termination of employment with National . . . .” Watts was considered a client company. In August 1994, Watts named Olsten as its exclusive, on-site, temporary employee provider. Olsten agreed, however, to permit National employees to continue their assignments at Watts.

In January 1995, the parties discussed a potential lay-off of National’s employees, and a dispute arose as to the validity of any such lay-off. At that time, National informed Olsten of the restrictive covenant in its employees’ contracts and warned Olsten that the contracts prohibited “agency jumping.” On March 3, 1995, Olsten posted a bulletin at Watts informing employees that Watts would no longer be affiliated with National and that National employees who wished to remain at Watts could apply for a position through Olsten. Seven National employees applied to Olsten and were hired. Each employee had signed the employment contract containing the restrictive covenant prior to commencing an assignment at Watts.

National brought claims against Olsten for, among other things, breach of contract, intentional interference with contractual relations, and quantum meruit. At trial, Olsten moved to dismiss National’s claim for intentional interference with contractual relations, which the court denied.

The jury returned a defendant’s verdict on the breach of contract claim, but awarded National $11,882.01 on its quantum meruit claim and $8,750 on its claim for intentional interference with contractual [160]*160relations. Olsten’s motion to set aside the jury verdicts and for a new trial was denied. This appeal followed.

Olsten first argues that the restrictive covenant in National’s contracts with its employees is unreasonable and unenforceable.

The public policy of New Hampshire encourages free trade and discourages covenants not to compete. Nevertheless, our courts uphold a limited restraint if reasonable as applied -to the particular circumstances of the parties. A restraint on .employment is reasonable only if it is no greater than necessary for the protection of the employer’s legitimate interest, does not impose undue hardship on the employee, and is not injurious to the public interest.

Concord Orthopaedics Prof. Assoc. v. Forbes, 142 N.H. 440, 442-43, 702 A.2d 1273, 1275 (1997) (citation and quotation omitted). If a covenant violates any prong of the reasonableness test, it is unreasonable and unenforceable. See id. A covenant’s reasonableness'is a matter of law for this court to decide. See Technical Aid Corp. v. Allen, 134 N.H. 1, 8, 591 A.2d 262, 265 (1991).

“Covenants are valid only to the extent that they prevent employees from appropriating assets that are legitimately the employer’s.” Concord Orthopaedics, 142 N.H. at 443, 702 A.2d at 1276.

Legitimate interests of an employer which may be protected from competition include: the' employer’s trade secrets which have been communicated to the employee, during the course of employment; confidential information communicated by the employer to the employee, but not involving trade secrets, such as information on a unique business method;, an employee’s special influence over the employer’s customers, obtained during the course of employment; contacts developed during the employment; and the employer business’s development of goodwill and a positive image.

54A AM. JUR. 2d Monopolies, Restraints of Trade and Unfair Trade Practices § 917 (1996).

We have not considered the enforceability of a restrictive covenant absent the potential for appropriation of confidential information, trade secrets, customer lists, or company goodwill. In fact, we have found that a restrictive covenant cannot reasonably be ex[161]*161tended to new patients, as opposed to existing patients, in the context of the medical profession because it would “contravene [] the principle of narrowly tailoring covenants not to compete to encompass only legitimate interests of the employer . . . [and] such an interpretation of legitimate interests does not foster the public good.” Concord Orthopaedics, 142 N.H. at 444, 702 A.2d at 1276.

In this case, the sole “employer interest” articulated by National is the retention of employees for a sufficient period to enable it to recoup costs associated with “recruiting, interviewing, checking references, qualifying, insuring, and placing” its employees. All businesses, however, incur expenses in recruiting and hiring employees. National does not allege that the restrictive covenant was necessary to prevent its employees from appropriating the company’s confidential information, trade secrets, or goodwill. Its employees were light industrial laborers who were not in a position to appropriate the company’s goodwill and were without access to sensitive information. Post-employment restrictions on such employees would be contrary to public policy and would impose an undue hardship, particularly for at-will employees who could be discharged at any time.

Thus, we hold that although there may be valid reasons for restrictive covenants, the mere cost associated with recruiting and hiring employees is not a legitimate interest protectable by a restrictive covenant in an employment contract. Because National has not met the first prong of the reasonableness test, the covenant is unreasonable and unenforceable. See Concord Orthopaedics, 142 N.H. at 442-43, 702 A.2d at 1275.

Next, we address whether Olsten otherwise “wrongfully” or “improperly” interfered with the employment contract between National and its employees so as to incur liability for intentional interference with contractual relations. Olsten argues that because National did not prove wrongful or improper conduct, the trial court erred in failing to direct a verdict in its favor on this claim. We agree.

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Bluebook (online)
761 A.2d 401, 145 N.H. 158, 17 I.E.R. Cas. (BNA) 1885, 2000 N.H. LEXIS 39, Counsel Stack Legal Research, https://law.counselstack.com/opinion/national-employment-service-corp-v-olsten-staffing-service-inc-nh-2000.