Facts
- Gordon S. Wood operated a horseshoeing business and hired William R. May in November 1961 as an apprentice horseshoer.
- In January 1962, the parties signed a written agreement under which Wood would teach May horseshoeing, and May agreed to a post-employment covenant not to compete.
- The covenant barred May, for five years after leaving employment (by resignation or discharge), from engaging in horseshoeing or blacksmithing within a 100-mile radius of Wood’s shop; the contract authorized injunctive relief for breach.
- Over roughly two years, May advanced quickly, became the primary contact for many customers, and developed customer confidence while working for Wood.
- In March 1964, May resigned and promptly opened a competing horseshoeing business in Tacoma, about five miles from Wood’s location.
- May obtained a substantial number of Wood’s customers in Pierce County and on Vashon Island.
- Wood’s business was concentrated in Pierce County and on Vashon Island, though it occasionally served a small number of customers as far as nearly 100 miles away.
Issues
- Whether post-employment restrictive covenants are void as against public policy.
- Whether the covenant lacked adequate consideration.
- Whether the five-year duration and 100-mile territorial restriction were unreasonable.
- If unreasonable in scope, whether a court in equity may modify the covenant and enforce it as modified.
Decision
- The Washington Supreme Court reversed the trial court’s dismissal and remanded for entry of injunctive relief enforcing the covenant as modified.
- The court held employee noncompetes are not per se void; they are enforceable if reasonable and necessary to protect legitimate employer interests.
- The court held the covenant was supported by adequate consideration, including Wood’s promise to train May and provide employment.
- The court agreed the covenant’s written scope (five years and 100 miles) was broader than necessary, given the actual area of Wood’s operations.
- The court rejected an all-or-nothing “indivisible covenant” approach and authorized equitable limitation of the restraint to a reasonable time and geographic area.
Legal Principles
- Post-employment noncompete agreements may be enforced when they are reasonable and no greater than necessary to protect the employer’s business or goodwill.
- Training provided to an employee and the employment relationship may constitute sufficient consideration for a noncompete promise.
- An employer has a protectable interest in customer goodwill and customer relationships developed through the employee’s work on the employer’s behalf.
- Overbroad restraints may be partially enforced in equity by narrowing unreasonable time and territorial limits to what is reasonable under the circumstances.
Conclusion
The court held that an employee noncompete is enforceable when reasonable and supported by legitimate employer interests and consideration, and it directed enforcement through an injunction limited to a reasonable duration and geographic area rather than invalidating the covenant for overbreadth.