Sheinman v. Cohen

6 Pa. D. & C.3d 261, 1977 Pa. Dist. & Cnty. Dec. LEXIS 106
CourtPennsylvania Court of Common Pleas, Philadelphia County
DecidedApril 21, 1977
Docketno. 4308
StatusPublished

This text of 6 Pa. D. & C.3d 261 (Sheinman v. Cohen) is published on Counsel Stack Legal Research, covering Pennsylvania Court of Common Pleas, Philadelphia County primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sheinman v. Cohen, 6 Pa. D. & C.3d 261, 1977 Pa. Dist. & Cnty. Dec. LEXIS 106 (Pa. Super. Ct. 1977).

Opinion

TAKIFF, J.,

On January 27, 1977, plaintiff, Ned. H. Sheinman, t/a C.D.H. Sherett Furniture Co., filed a complaint in equity seeking to enjoin defendant, Louis Cohen, from contacting, selling or interfering with plaintiff’s customers and seeking an accounting of all orders, sales and monies received on account of defendant’s business dealings with plaintiff’s customers. The complaint alleged that plaintiff had entered into an employment contract with defendant, which contract contained a covenant restricting defendant from competing after termination of employment. It was further alleged that defendant unilaterally terminated his employment and thereafter began to compete with plaintiff. Defendant answered and specifically denied the validity of the restrictive covenant set forth in the employment agreement.

After hearing, stipulated by the parties as final, we enter the decree nisi pursuant to Pa.R.C.P. 1517(a) and adjudication as hereafter set forth.

[263]*263ISSUES

These issues are raised by the pleadings and evidence for determination:

1) Whether the covenant not to compete, which was executed after the initial taking of employment, was made for adequate consideration and is otherwise enforceable.

2) Whether plaintiff is entitled to injunctive relief for defendant’s alleged wrongful use of confidential information, customer lists, or trade secrets.

3) Whether plaintiff suffered monetary damages as the result of wrongful conduct on the part of defendant.

DISCUSSION

Post-employment restraints are enforceable where they are ancillary or incident to an employment relation between the parties to the covenant, the restrictions are reasonably necessary for the protection of the employer, and the restrictions are reasonably limited in duration and geographic extent: See John G. Bryant Co., Inc. v. Sling Testing & Repair, Inc., 471 Pa. 1, 369 A. 2d 1164 (1977); Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A. 2d 250 (1976); Girard Investment Co. v. Bello, 456 Pa. 220, 318 A. 2d 718 (1974); Bettinger v. Carl Berke Assocs., Inc., 455 Pa. 100, 314 A. 2d 296 (1974); Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A. 2d 612 (1967).

“Where the restrictive covenant is ancillary to a contract establishing an employment relationship, where none existed previously thereto, the employment constitutes consideration supporting that [264]*264covenant, as well as all other terms of the employment contract.” Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 225-226, 206 A. 2d 59 (1965). This does not mean that the restrictive covenant must necessarily be executed simultaneously with the initial taking of employment, e.g., Jacobson & Co. v. International Enviroment Corp., supra. But where a restrictive covenant is executed subsequent to the initial employment, such covenant is not ancillary to the taking of employment, and therefore unenforceable, unless there has been a change in employment status or the covenant is supported by other new consideration. See John G. Bryant Co. v. Sling Testing & Repair, Inc., supra; George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A. 2d 311 (1975); Maintenance Specialities v. Gottus, 455 Pa. 327, 314 A. 2d 279 (1974); Jacobson & Co. v. International Environment Corp., supra.

In the present case, defendant was employed by plaintiff under an oral contract from November 1975 to January 3, 1977. On January 3, plaintiff presented defendant with a written contract which contained a restrictive covenant. Under this new contract defendant continued in the same position with the same duties and responsibilities as under the oral contract. The new contract maintained the same commission formula but reduced or eliminated certain other benefits previously provided. Under these circumstances the contract of January 3, 1977, did not present a change in employment status or provide new consideration sufficient to support the restrictive covenant.

Plaintiff argues that continuation of defendant’s employment was adequate consideration to support the terms of the employment contract. While our research has not disclosed any Pennsylvania [265]*265case directly on point, four Justices of our Supreme Court have recently expressed the view that “[a]n employee’s continued employment is not sufficient consideration for a covenant not to compete which the employee signed after the inception of his employment, where the employer makes no promise of continued employment for a definite term.” Maintenance Specialties, Inc. v. Gottus, 455 Pa. 327, 333, 314 A. 2d 279 (1974) (concurring opinion, Jones, C.J., joined by Eagen, Pomeroy, Nix, JJ.). See also George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A. 2d 311 (1975). Since the new contract does not indicate employment for a definite term we conclude that the restrictive covenant is unenforceable for lack of consideration, aside from its other infirmities such as reasonable restriction as to time and place.

Notwithstanding the absence or unenforce ability of a restrictive covenant, however, an employer is entitled to protection against competitive use of information acquired by employes as a result of positions of trust: Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A. 2d 838 (1957); Macbeth-Evans Glass Company v. Schnelbach, 239 Pa. 76, 86 Atl. 688 (1913).

In Macbeth-Evans, supra, the court said:

“It may now be accepted as settled law, under the authority of English and American cases, that courts of equity if the facts warrant will restrain an employee from making disclosure or use of trade secrets communicated to him in course of a confidential employment. The character of the secrets, if they be peculiar and important to the business, is not material. They may be secrets of trade, or secrets of title, or secret processes of manufacture, or [266]*266any other secrets important to the business of the employer. They, however, must be the particular secrets of the complaining employer, not general secrets of the trade in which he is engaged, nor even the same secrets as those sought to be protected, if they be discovered by the independent investigation of outside parties. The duty of the servant not to disclose the secrets of the master may arise from an express contract, or it may be implied from their confidential relations.” Supra, p. 85 (Emphasis supplied.)

In Morgan’s Home Equipment Corp. v. Martucci, supra, the court reaffirmed the above principle and added:

“In many businesses, permanent and exclusive relationships are established between customers and salesmen. The customer lists and customer information which have been compiled by such firms represent a material investment of employers’ time and money. This information is highly confidential and constitutes a valuable asset. Such data has been held to be property in the nature of a ‘trade secret’ for which an employer is entitled to protection, independent of a non-disclosure contract, either under the law of agency or under the law of unfair trade practices.” Supra, at 623 (Emphasis supplied.)

In the present case the so-called “customer lists” and the credit experience continuously developed in connection therewith are secrets important to the business of plaintiff. They constituted a major asset of the business purchased by plaintiff in November, 1975.

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Related

Sidco Paper Company v. Aaron
351 A.2d 250 (Supreme Court of Pennsylvania, 1976)
George W. Kistler, Inc. v. O'BRIEN
347 A.2d 311 (Supreme Court of Pennsylvania, 1975)
Barb-Lee Mobile Frame Co. v. Hoot
206 A.2d 59 (Supreme Court of Pennsylvania, 1965)
Jacobson & Co. v. International Environment Corp.
235 A.2d 612 (Supreme Court of Pennsylvania, 1967)
John G. Bryant Co. v. Sling Testing & Repair, Inc.
369 A.2d 1164 (Supreme Court of Pennsylvania, 1977)
Maintenance Specialties, Inc. v. Gottus
314 A.2d 279 (Supreme Court of Pennsylvania, 1974)
Girard Investment Co. v. Bello
318 A.2d 718 (Supreme Court of Pennsylvania, 1974)
Carl A. Colteryahn Dairy, Inc. v. Dairy
203 A.2d 469 (Supreme Court of Pennsylvania, 1964)
Morgan's Home Equipment Corp. v. Martucci
136 A.2d 838 (Supreme Court of Pennsylvania, 1957)
Macbeth-Evans Glass Co. v. Schnelbach
86 A. 688 (Supreme Court of Pennsylvania, 1913)
Bettinger v. Carl Berke Assoc., Inc.
314 A.2d 296 (Supreme Court of Pennsylvania, 1974)

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Bluebook (online)
6 Pa. D. & C.3d 261, 1977 Pa. Dist. & Cnty. Dec. LEXIS 106, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sheinman-v-cohen-pactcomplphilad-1977.