Harwell Enterprises, Inc. v. Heim

170 S.E.2d 540 (1969)

6 N.C. App. 548

HARWELL ENTERPRISES, INC. v. Gary L. HEIM, Individually, and Gary L. Heim and Dwight Ballard, Trading as Metro Screen Engraving Company.

No. 6927SC532.

Court of Appeals of North Carolina.

November 19, 1969.

Certiorari Allowed January 6, 1970.

*542 Whitener & Mitchem by Basil L. Whitener and Anne M. Lamm, Gastonia, for plaintiff appellant.

Horace M. DuBose, III, Gastonia, for defendant appellee Heim.

Hollowell, Stott & Hollowell, by Grady B. Scott, Gastonia, for defendant appellee Ballard.

CAMPBELL, Judge.

While Ballard took exceptions to overruling his demurrer and in the record made assignments of error, nevertheless, he did not set same out in his brief, and they are taken as abandoned by him. Rule 28, Rules of Practice in the Court of Appeals of North Carolina. Ballard filed a brief in support of the ruling of the trial judge sustaining the demurrer of Heim.

We confront the question as to whether the employment contract in this case is void and unenforceable.

The law of "restrictive covenants not to compete" has been fashioned in numerous *543 decisions of the North Carolina Supreme Court. Although general restraints of trade are not allowed, so-called partial restraints have been permitted under certain conditions. Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154 (1930); Scott v. Gillis, 197 N.C. 223, 148 S.E. 315 (1929); 17 C.J.S. Contracts, § 241(1), pp. 1109-1110.

This case involves a personal service contract and does not involve covenants not to compete entered into in connection with the sale of a business and its good will.

The demurrer admits the facts pleaded in the complaint, but it does not admit any legal inferences or conclusions of law asserted by the pleader. Maola Ice Cream Co. of North Carolina v. Maola Milk & Ice Cream Co., 238 N.C. 317, 77 S.E.2d 910 (1953).

Applying this principle as to the admitted facts, we next turn to the applicable law. In Asheville Associates, Inc. v. Miller and Asheville Associates, Inc. v. Berman, 255 N.C. 400, 121 S.E.2d 593 (1961), Higgins, J., set forth the applicable rule as follows:

"Courts generally refuse to enforce restrictive covenants in employment contracts unless they are (1) in writing, (2) entered into at the time and as a part of the contract of employment, (3) based on valuable considerations, (4) reasonable both as to time and territory embraced in the restrictions, (5) fair to the parties, and (6) not against public policy."

Restrictive covenants in employment contracts, otherwise reasonable, will be enforced by a court of equity if

"* * * they are no wider than reasonably necessary for the protection of the employer's business, and do not impose undue hardship on the employee, due regard being had to the interests of the public." 17 C.J.S. Contracts § 254, p. 1138. See Greene Co. v. Arnold, 266 N.C. 85, 145 S.E.2d 304 (1965); Asheville, Associates, Inc. v. Miller, supra; and Welcome Wagon, International, Inc. v. Pender, 255 N.C. 244, 120 S.E.2d 739 (1961).

Restrictive covenants not to compete in employment contracts are scrutinized more rigorously than similar covenants incident to a sale of a business. The burden is on the plaintiff to establish the reasonableness of the contract. The mere allegation of business throughout the United States which needs to be protected is not sufficient. The plaintiff has failed to demonstrate on this record that the restrictive covenant applying to the entire United States was necessary to protect the legitimate interests of the business of the plaintiff. Noe v. McDevitt, 228 N.C. 242, 45 S.E.2d 121 (1947).

Some of the criteria to be observed in these cases are set out by Stacy, C. J., in Beam v. Rutledge, 217 N.C. 670, 9 S.E.2d 476 (1940):

"Public policy is concerned with both sides of the question. It favors the enforcement of contracts intended to protect legitimate interests and frowns upon unreasonable restrictions. * * * It is as much a matter of public concern to see that valid contracts are observed as it is to frustrate oppressive ones. Both functions belong to the courts. The test to be applied in determining the reasonableness of a restrictive covenant is to consider whether the restraint affords only a fair protection to the interest of the party in whose favor it is given, and is not so broad as to interfere with the rights of the public. * * * The question is one of reasonableness reasonableness in reference to the interests of the parties concerned and reasonableness in reference to the interests of the public. * * * Such a covenant is not unlawful if the restriction is no more than necessary to afford fair protection to the covenantee and is not injurious to the interests of the public. * * * *544 * * * * * * The line of demarcation, therefore, between freedom to contract on the one hand and public policy on the other must be left to the circumstances of the individual case. Just where this line shall be in any given situation is to be determined by the rule of reason. Of necessity, no arbitrary standard can be established in advance for the settlement of all cases."

In order for plaintiff to establish the reasonableness of a contract to protect a business throughout the United States, we think it is incumbent upon the plaintiff to show that such a business does exist and that the contract was necessary to protect such legitimate interests. The record in this case does not support the position of the plaintiff.

The allegation "[t]hat the business of the plaintiff consists of various business endeavors including all phases of silk screen processing, plastics, importing and various other ventures throughout the United States" undoubtedly establishes a conglomerate in the largest sense but there is no corresponding allegation that the defendant is such an inventive genius or other human dynamo that his presence in a business endeavor anywhere in the United States would short-circuit the operations of the plaintiff and cause even the mildest tremor in the far-flung operations of the plaintiff. To uphold the covenant the plaintiff must allege and be prepared to prove that the covenant is "no more than necessary to afford fair protection to the covenantee [the plaintiff] and is not injurious to the interests of the public." Beam v. Rutledge, supra.

Here the allegations show that Heim is interfering with the "silk screen processing" segment of business of the plaintiff Harwell, in a territory surrounding Gastonia, North Carolina. There is nothing to show that Heim is interfering with any other segment of the "various business endeavors" of the plaintiff or that any "other ventures throughout the United States" are affected in the least. Thus there is no correlation of the protection sought with any need of the business of Harwell. "The Court cannot by splitting up the territory make a new contract for the partiesit must stand or fall integrally." Noe v. McDevitt, supra.

As to defendant Ballardappeal dismissed.

As to plaintiff Harwellaffirmed.

FRANK M. PARKER and GRAHAM, JJ., concur.