## Facts

- A. Clayton Robbins operated a Utah distributorship selling Beltone-brand hearing aids and employed Douglas A. Finlay as a hearing-aid salesman.
- In 1974, Finlay signed an employment contract with (1) a customer-leads clause labeling customer lists and leads as the employer’s trade secrets, with $5,000 stipulated damages for misuse, and (2) a noncompetition clause barring Finlay from selling or servicing hearing aids in the employer’s Utah service area for one year after termination, with $3,000 stipulated damages plus attorney’s fees for breach.
- Finlay was an experienced hearing-aid salesman and did not receive the training contemplated by the contract.
- In late 1975, the parties discussed changing employment terms, but no new agreement was executed.
- Finlay resigned in December 1975 and opened a competing hearing-aid business in Salt Lake City, within the restricted territory.
- Evidence showed Finlay possessed a Beltone list of over 150 potential customers and made sales to customers identified through Beltone’s hearing clinic without compensating Beltone.
- A jury found Finlay breached both the customer-leads provision and the noncompetition provision and awarded $5,000 and $3,000 respectively, plus $2,500 attorney’s fees.

## Issues

1. Whether the contract’s $5,000 stipulated-damages provision for unauthorized use of customer leads was enforceable liquidated damages or an unenforceable penalty.
2. Whether the one-year, territory-wide covenant not to compete was reasonable and enforceable or an invalid restraint of trade, particularly as applied to an employee in a common occupation.

## Decision

- The Utah Supreme Court affirmed enforcement of the $5,000 stipulated-damages provision tied to misuse of customer leads.
- The court held the $5,000 amount was a valid liquidated-damages measure because losses from misuse of leads were difficult to quantify at contract formation and the amount was a reasonable forecast, not a punitive exaction.
- The court held the noncompetition covenant unenforceable because its primary effect was to suppress ordinary competition rather than protect a legitimate employer interest.
- The court reversed the portion of the judgment awarding $3,000 (and any related fee award dependent on the noncompete claim) based on the invalid noncompetition covenant.

## Legal Principles

- A stipulated-damages clause is enforceable as liquidated damages when (1) anticipated damages from breach are difficult to measure at the time of contracting and (2) the stipulated amount is a reasonable forecast of just compensation; the clause is invalid if it functions as a penalty.
- Proof of substantial actual damages is not required to enforce a valid liquidated-damages clause, so long as the amount is not clearly punitive under the circumstances.
- Covenants not to compete are enforceable only to the extent reasonably necessary to protect legitimate business interests (e.g., trade secrets, confidential information, or protectable goodwill) and must be reasonable in time, geography, and scope of restrained activity.
- A restraint that mainly blocks competition in a common occupation, without a distinct protectable employer interest not already protected by narrower means, is unreasonable and void as a restraint of trade.

## Conclusion

The court enforced the contract’s liquidated-damages remedy for misuse of customer leads because the harm was hard to quantify and the amount was a reasonable estimate, but struck down the territorial one-year noncompete as an unreasonable restraint that primarily barred ordinary competition rather than protecting a legitimate business interest.


Robbins v. Finlay, 645 P.2d 623 (Utah 1982)