Hopper v. All Pet Animal Clinic

Supreme Court of Wyoming · 1993 · Contracts

Contractscovenant not to competeemployment contractrestraint of traderule of reasonseparate considerationcontinued employmentpartial enforcement

Facts

Dr. Hopper began working for All Pet Animal Clinic part-time in 1988 and full-time in 1989 under an oral agreement, but the specific terms of a noncompete were not discussed at formation. A written employment agreement signed later prohibited her, upon termination, from practicing small animal medicine for three years within five miles of Laramie, and a later addendum raised her salary and reaffirmed the covenant. After disputes about her possible purchase of another local practice, Dr. Johnson terminated her employment, and Dr. Hopper bought and operated Gem City Veterinary Clinic in Laramie, where she practiced both large and small animal medicine. Evidence showed 187 Gem City clients were also clients of All Pet or Alpine, and the employers sued for injunctive relief and damages.

Issue

Whether the covenant not to compete was enforceable against Dr. Hopper, including whether it was supported by consideration and whether its activity, geographic, and three-year durational limits were reasonable. The court also considered whether the employers proved damages for breach with sufficient certainty.

Rule

A covenant not to compete ancillary to employment is enforceable only if it is in writing, part of an employment contract, supported by reasonable consideration, reasonable in duration and geography, and not against public policy. When such a covenant is entered during an existing employment relationship, continued employment alone is insufficient; separate consideration such as a pay raise, promotion, special training, or other employee advantage is required. Under the rule of reason, a restraint is unreasonable if it is greater than necessary to protect the employer's legitimate interests or if the employer's need is outweighed by hardship to the employee and likely injury to the public. A court may partially enforce an overbroad covenant by enforcing only the reasonable portion if the employer obtained the term in good faith and the unenforceable part is not essential to the exchange. Damages for breach may include lost profits, but only net lost profits proven with reasonable certainty and causation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maya Torres began working as an at-will physical therapist for River Bend Rehab Group in Cheyenne under an oral employment arrangement. Eight months later, the clinic asked her to sign a written agreement barring her from practicing outpatient physical therapy within four miles of the clinic for two years after leaving, but the clinic gave her no raise, promotion, training, or added benefits.

If Maya later leaves and opens a competing practice nearby, is the covenant most likely enforceable?

Explanation. The majority held that when a covenant not to compete is entered during an ongoing employment relationship, continued employment alone is insufficient. Separate consideration such as a raise, promotion, special training, benefits, or other employee advantage is required. Because Maya received no separate consideration, the covenant would fail for lack of consideration even though it was in writing.