Roanoke Engineering Co. v. Rosenbaum

Supreme Court of Virginia · 1982 · Contracts

ContractsNon-competition covenantsInjunctive reliefEquitynon-competerestrictive covenantemployment contractreasonableness

Facts

Curtis Rosenbaum was an officer, director, treasurer, and branch manager of RESCO, a corporation operating four branch divisions in Virginia and North Carolina. His employment contract barred him for three years after termination from participating in any similar business in the territory covered by RESCO. After being discharged from his offices and reduced to salesman status in April 1978, Curtis resigned, joined a direct competitor in the Roanoke area, and soon purchased that competitor's assets and renamed the company Rosenbaum of Roanoke, Inc. Through his corporate roles, Curtis had access to RESCO's confidential financial records, customer and supplier lists, pricing policies, overhead factors, and bidding techniques across all branches.

Issue

Whether the non-competition covenant was reasonable and enforceable as written, and if so, whether a court of equity could enjoin Curtis prospectively after the covenant's original three-year period had expired during litigation. Put differently, the court had to decide whether expiration of the stated period made the case moot or whether equitable relief could still be fashioned.

Rule

A non-competition covenant will be enforced in equity if, in light of the facts, it is no greater than necessary to protect the employer's legitimate business interest, is not unduly harsh and oppressive in curtailing the employee's legitimate efforts to earn a livelihood, and is reasonable from the standpoint of sound public policy. Where such a covenant is breached and judicial delay causes the contractual period to expire before final decision, a court of equity may prospectively enforce the covenant for an appropriate period so that the breaching party does not profit from the breach and render judicial relief ineffective.

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Lakeside Industrial Supply, a fictional distributor headquartered in Richmond with divisions in Norfolk, Roanoke, Raleigh, and Charleston, employed Dana Mercer as chief financial officer and regional operations vice president. Dana signed an agreement barring her for two years after leaving from participating in any business similar to Lakeside's anywhere in the territory where Lakeside operated, and she later left to run a competitor in Raleigh after having full access to company-wide pricing formulas, supplier lists, margin data, and bidding strategies.

If Lakeside seeks an injunction, which is the strongest argument that the territorial scope is enforceable?

Explanation. The governing rule is whether the restraint is no greater than necessary to protect the employer's legitimate business interest, not unduly harsh to the employee, and consistent with public policy. A geographic scope matching the employer's actual business territory is enforceable where the employee's role gave access to confidential information affecting all divisions, making competition across that territory a real threat. The majority emphasized actual access to company-wide financial, customer, supplier, pricing, overhead, and bidding information.