NEW HAVEN TOBACCO CO. v. PERRELLI

6575

18 Conn. App. 531 (1989) | Cited 6 times | Connecticut Appellate Court | June 6, 1989

The plaintiff appeals from the judgment of thetrial court invalidating as unreasonable arestrictive covenant contained in an employment contractsigned by the plaintiff and the defendant. We find error.

The following facts are undisputed. In December,1980, the plaintiff, a wholesale tobacco business, andthe defendant entered into an employment contract thatcontained the following covenant: "Because of theimportance and value of the information disclosed to theemployee, as part of the consideration for hisemployment, the Employee agrees that he will notdirectly or indirectly sell products similar to thoseof the Employer to any of the customers that he hasdealt with or has discovered and become aware of whilein the employ of the Employer for a period of twenty-fourmonths from the termination of his employment."

The defendant voluntarily terminated his employmentrelationship with the plaintiff in November, 1981.Shortly thereafter, the defendant opened his ownwholesale tobacco business and sold "products similarto those of the Employer" to certain customers of theplaintiff within the twenty-four month period of therestrictive covenant.

The plaintiff subsequently brought an action againstthe defendant seeking money damages and injunctiverelief.1 The trial court, Hadden, J., denied the plaintiff's

[18 Conn. App. 533]

     application for a temporary injunction. Theplaintiff appealed to the Supreme Court, whichdismissed the appeal suo motu, on the ground that anappeal taken from the denial of a temporary injunctionis not taken from a final judgment.

The Supreme Court remanded the case to the trialcourt and, after trial, the court, Reynolds, J.,rendered judgment for the defendant on the ground thatthe covenant interfered with the public interest. Theplaintiff appealed the decision to this court, claimingthat the trial court erred as a matter of law inholding that the covenant was unenforceable. Becausethe trial court invalidated the covenant on the groundthat it restricted the public interest, withoutdetermining whether the restriction was reasonable, wefound error and remanded the case to the trial courtfor evaluation of the covenant under the criteria setforth in Scott v. General Iron & Welding Co., 171 Conn. 132,368 A.2d 112 (1976). New Haven Tobacco Co. v.Perrelli, 11 Conn. App. 636, 528 A.2d 865 (1987).

On remand, the trial court again invalidated the covenantconcluding that it was unreasonable because itlacked a geographic limitation and because it undulyinterfered with the public interest. The plaintiff hasagain appealed, claiming that the trial court erred ininvalidating the covenant.

A covenant that restricts the activities of an employeefollowing the termination of his employment is valid andenforceable if the restraint is reasonable. Scott v.General Iron & Welding Co., supra, 137. There are fivecriteria by which the reasonableness of a restrictivecovenant must be evaluated: (1) the length of time therestriction is to be in effect; (2) the geographic areacovered by the restriction; (3) the degree of protectionafforded to the party in whose favor the covenant ismade; (4) the restrictions on the employee's ability to

[18 Conn. App. 534]

     pursue his occupation; and (5) the extent of interferencewith the public's interests. Id., 137-38. The fiveprong test of Scott is disjunctive, rather thanconjunctive; a finding of unreasonableness in any oneof the criteria is enough to render the covenantunenforceable. New Haven Tobacco Co. v. Perrelli,supra, 639 n. 2.

In the present case, the trial court concluded thatthe restrictive covenant was unreasonable with respectto the second and fifth prongs of Scott, finding thatthe covenant lacked any geographic limitation andunduly interfered with the public's interests. Thetrial court reasoned that because the covenant did notspecify the geographic area covered by the restriction,the geographic scope of the covenant was unlimited andthus unreasonable. We disagree.

The application of a restrictive covenant must be confinedto a geographic area that is reasonable in view of theparticular situation. Scott v. General Iron & WeldingCo., supra, 138. "A restrictive covenant which protectsthe employer in areas in which he does not do businessor is unlikely to do business is unreasonable withrespect to area." Id.

The trial court's conclusion that the lack of anexplicit geographic limitation rendered the covenantunreasonable with respect to area misconstrues thenature and operation of the particular covenant atissue. The covenant is not an anticompetitive covenantthat restricts an employee from engaging in the samebusiness as the employer in a given geographical areaand prohibits the employee from doing business with allconsumers of the service located in that area. Instead,the covenant at issue imposes an antisales restrictionthat prevents the employee from transacting businesswith only a specified group of consumers, namely, thecustomers of the former employer.

[18 Conn. App. 535]

An antisales restriction, as opposed to an anticompetitiverestriction, is by its nature limited to adefinite geographic area.2 See Robert S. Weiss &Associates, Inc. v. Wietterlight, 208 Conn. 525, 531,546 A.2d 216 (1988). The geographic area affected by anantisales covenant is limited to that area in which thecustomers of the former employer are located, and therestriction, even within that area, applies only tothose customers.

In Weiderlight, our Supreme Court specifically rejected thecontention that the antisolicitation and antisalesrestriction at issue in that case was unreasonable asto geographic area because it lacked, as does thepresent covenant, an explicit geographic limitation.Id., 531-32. In that case, the employer was doingbusiness throughout Fairfield county and in New York.

In the present case, the plaintiff's market, and thusits protected customer list, are local and limited tothe greater New Haven area. Thus, although the covenantdoes not contain an explicit geographic limitation, thecovenant is in fact limited to a reasonable geographic area.

[18 Conn. App. 536]

The trial court also concluded that the restrictive covenantwas invalid and unenforceable because the covenantunreasonably interfered with the interests of the public.

In our previous opinion in this case, we set out factorsfor evaluating whether a restrictive employmentcovenant unreasonably interferes with the interests ofthe public. New Haven Tobacco Co. v. Perrelli, supra,640-42. In order for such interference to be reasonable,it first must be determined that the employer isseeking to protect a legally recognized interest, andthen, that the means used to achieve this end do notunreasonably deprive the public of essential goods andservices. Id., 642.

In determining whether a restrictive covenant unreasonablydeprives the public of essential goods and services,the reasonableness of the scope and severity ofthe covenant's effect on the public and the probabilityof the restriction's creating a monopoly in the area oftrade must be examined. Id., 641.

In the present case, the trial court correctly recognizedthat the interest sought to be protected by theplaintiff, that is, its clientele, is a legallyprotected interest. An employer possesses a proprietaryright to his customers that he is entitled to protectfor a reasonable time. May v. Young, 125 Conn. 1, 7,2 A.2d 385 (1938). The trial court concluded, however,that the covenant unreasonably interfered with thepublic interest because the lack of an explicitgeographic limitation rendered the covenantunreasonable with respect to its scope and would permitthe plaintiff to maintain a monopoly. We disagree.

The trial court reasoned that because thecovenant lacked an explicit geographic limitation,an unrestricted section of the population wouldbe prohibited from transacting business withthe defendant. As we noted above, however,

[18 Conn. App. 537]

     the covenant is, in fact, geographically limitedto that area in which the customers of the plaintiffare located. Moreover, even within that geographic area,the defendant is prohibited from transacting businessonly with the customers of the plaintiff's wholesaletobacco business with whom he had dealt or whose identity hehad discovered while he was employed by the plaintiff.The fact that the defendant is prohibited from doingbusiness with this limited group of individuals doesnot support the trial court's conclusion that anunrestricted section of the populace would be affectedby the covenant.

The trial court also concluded that the lack of ageographic limitation supported an inference that theplaintiff was trying to maintain a monopoly in thewholesale tobacco business. No evidence was presentedconcerning the market share of either party. The recordcontains no support for the conclusion that theplaintiff was attempting to create or maintain amonopoly in the wholesale tobacco business. Because thecovenant was reasonably limited as to geographic area,there was no basis from which the trial court coulddraw an inference, even if such an inference werepermissible, that the plaintiff was attempting tomaintain a monopoly.

Because the protection of customers is a legallyrecognized interest and because the covenant is notunreasonable with respect to the scope of its effect onthe public interest and there is no evidence toindicate that it would permit the plaintiff to createor maintain a monopoly, we conclude that the covenantdoes not unreasonably interfere with the public'sinterests.

In order for a covenant to be valid and enforceable,it must be reasonable with respect to all five criteriaset forth in Scott v. General Iron & Welding Co., supra.Thus, We also must evaluate the reasonableness of thecovenant with respect to the time limitation of the covenant,the restriction imposed

[18 Conn. App. 538]

     on the employee's ability to pursue his occupation andthe degree of protection afforded to the employer bythe covenant. We conclude that the covenant is alsoreasonable with respect to these criteria.

The covenant prevents the defendant from transactingbusiness with customers of the plaintiff for a periodof two years after leaving the plaintiff's employ. Sucha two year restriction is clearly reasonable. SeeRobert S. Weiss & Associates, Inc. v. Wiederlight, supra(two year restriction upheld). Scott v. General Iron &Welding Co., supra (five year restriction upheld); Mayv. Young, supra (two year restriction upheld).

As to the remaining criteria, the protection of anemployer's interest in his customers through the use ofsimilar covenants restricting an employee from entryinto the employ of or selling to or soliciting anemployer's customers, has been held reasonable withrespect to both the degree of protection afforded anemployer and the restriction placed on an employee'spursuit of his or her occupation. See; Robert S. Weiss& Associates, Inc. v. Wiederlight, supra. May v. Young,supra.

Because the restrictive employment covenant at issueis reasonable with respect to the five Scott criteria,and thus valid and enforceable, we conclude that theplaintiff is entitled to enforcement of the covenantand that the trial court erred in rendering judgmentfor the defendant.

There is error, the judgment is set aside and thecase is remanded for further proceedings consistentwith this opinion.

In this opinion the other judges concurred.

1. The plaintiff subsequently revised its complaint toeliminate the claim for injunctive relief.

2. The fact that the restrictive employment covenantat issue is an antisales covenant, rather than anantisolicitation covenant, does not automaticallyrender it unenforceable. Although, as we noted in ourprevious opinion in this case, an antisales covenant,which prohibits an employee from transacting businesswith customers of the former employer, imposes agreater burden on the public interest than anantisolicitation covenant, which prohibits only thesolicitation of such customers, an antisales covenantmay be valid if it is reasonable with respect to thefive criteria of Scott v. General Iron Welding Co.,171 Conn. 132, 137-38, 368 A.2d 111 (1976) New Haven TobaccoCo. v. Perrelli, 11 Conn. App. 636, 639-40, 528 A.2d 865(1987). In May v. Young, 125 Conn. 1, 2 A.2d 385 (1938), arestrictive covenant was held valid despite the fact that itprevented the employee from entering into the employ ofany client of the former employer. Similarly, inRobert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525,546 A.2d 216 (1988), the covenant that was heldvalid prohibited the employee from soliciting orselling to customers of the plaintiff employer.Page 539

The plaintiff appeals from the judgment of thetrial court invalidating as unreasonable arestrictive covenant contained in an employment contractsigned by the plaintiff and the defendant. We find error.

The following facts are undisputed. In December,1980, the plaintiff, a wholesale tobacco business, andthe defendant entered into an employment contract thatcontained the following covenant: "Because of theimportance and value of the information disclosed to theemployee, as part of the consideration for hisemployment, the Employee agrees that he will notdirectly or indirectly sell products similar to thoseof the Employer to any of the customers that he hasdealt with or has discovered and become aware of whilein the employ of the Employer for a period of twenty-fourmonths from the termination of his employment."

The defendant voluntarily terminated his employmentrelationship with the plaintiff in November, 1981.Shortly thereafter, the defendant opened his ownwholesale tobacco business and sold "products similarto those of the Employer" to certain customers of theplaintiff within the twenty-four month period of therestrictive covenant.

The plaintiff subsequently brought an action againstthe defendant seeking money damages and injunctiverelief.1 The trial court, Hadden, J., denied the plaintiff's

[18 Conn. App. 533]

     application for a temporary injunction. Theplaintiff appealed to the Supreme Court, whichdismissed the appeal suo motu, on the ground that anappeal taken from the denial of a temporary injunctionis not taken from a final judgment.

The Supreme Court remanded the case to the trialcourt and, after trial, the court, Reynolds, J.,rendered judgment for the defendant on the ground thatthe covenant interfered with the public interest. Theplaintiff appealed the decision to this court, claimingthat the trial court erred as a matter of law inholding that the covenant was unenforceable. Becausethe trial court invalidated the covenant on the groundthat it restricted the public interest, withoutdetermining whether the restriction was reasonable, wefound error and remanded the case to the trial courtfor evaluation of the covenant under the criteria setforth in Scott v. General Iron & Welding Co., 171 Conn. 132,368 A.2d 112 (1976). New Haven Tobacco Co. v.Perrelli, 11 Conn. App. 636, 528 A.2d 865 (1987).

On remand, the trial court again invalidated the covenantconcluding that it was unreasonable because itlacked a geographic limitation and because it undulyinterfered with the public interest. The plaintiff hasagain appealed, claiming that the trial court erred ininvalidating the covenant.

A covenant that restricts the activities of an employeefollowing the termination of his employment is valid andenforceable if the restraint is reasonable. Scott v.General Iron & Welding Co., supra, 137. There are fivecriteria by which the reasonableness of a restrictivecovenant must be evaluated: (1) the length of time therestriction is to be in effect; (2) the geographic areacovered by the restriction; (3) the degree of protectionafforded to the party in whose favor the covenant ismade; (4) the restrictions on the employee's ability to

[18 Conn. App. 534]

     pursue his occupation; and (5) the extent of interferencewith the public's interests. Id., 137-38. The fiveprong test of Scott is disjunctive, rather thanconjunctive; a finding of unreasonableness in any oneof the criteria is enough to render the covenantunenforceable. New Haven Tobacco Co. v. Perrelli,supra, 639 n. 2.

In the present case, the trial court concluded thatthe restrictive covenant was unreasonable with respectto the second and fifth prongs of Scott, finding thatthe covenant lacked any geographic limitation andunduly interfered with the public's interests. Thetrial court reasoned that because the covenant did notspecify the geographic area covered by the restriction,the geographic scope of the covenant was unlimited andthus unreasonable. We disagree.

The application of a restrictive covenant must be confinedto a geographic area that is reasonable in view of theparticular situation. Scott v. General Iron & WeldingCo., supra, 138. "A restrictive covenant which protectsthe employer in areas in which he does not do businessor is unlikely to do business is unreasonable withrespect to area." Id.

The trial court's conclusion that the lack of anexplicit geographic limitation rendered the covenantunreasonable with respect to area misconstrues thenature and operation of the particular covenant atissue. The covenant is not an anticompetitive covenantthat restricts an employee from engaging in the samebusiness as the employer in a given geographical areaand prohibits the employee from doing business with allconsumers of the service located in that area. Instead,the covenant at issue imposes an antisales restrictionthat prevents the employee from transacting businesswith only a specified group of consumers, namely, thecustomers of the former employer.

[18 Conn. App. 535]

An antisales restriction, as opposed to an anticompetitiverestriction, is by its nature limited to adefinite geographic area.2 See Robert S. Weiss &Associates, Inc. v. Wietterlight, 208 Conn. 525, 531,546 A.2d 216 (1988). The geographic area affected by anantisales covenant is limited to that area in which thecustomers of the former employer are located, and therestriction, even within that area, applies only tothose customers.

In Weiderlight, our Supreme Court specifically rejected thecontention that the antisolicitation and antisalesrestriction at issue in that case was unreasonable asto geographic area because it lacked, as does thepresent covenant, an explicit geographic limitation.Id., 531-32. In that case, the employer was doingbusiness throughout Fairfield county and in New York.

In the present case, the plaintiff's market, and thusits protected customer list, are local and limited tothe greater New Haven area. Thus, although the covenantdoes not contain an explicit geographic limitation, thecovenant is in fact limited to a reasonable geographic area.

[18 Conn. App. 536]

The trial court also concluded that the restrictive covenantwas invalid and unenforceable because the covenantunreasonably interfered with the interests of the public.

In our previous opinion in this case, we set out factorsfor evaluating whether a restrictive employmentcovenant unreasonably interferes with the interests ofthe public. New Haven Tobacco Co. v. Perrelli, supra,640-42. In order for such interference to be reasonable,it first must be determined that the employer isseeking to protect a legally recognized interest, andthen, that the means used to achieve this end do notunreasonably deprive the public of essential goods andservices. Id., 642.

In determining whether a restrictive covenant unreasonablydeprives the public of essential goods and services,the reasonableness of the scope and severity ofthe covenant's effect on the public and the probabilityof the restriction's creating a monopoly in the area oftrade must be examined. Id., 641.

In the present case, the trial court correctly recognizedthat the interest sought to be protected by theplaintiff, that is, its clientele, is a legallyprotected interest. An employer possesses a proprietaryright to his customers that he is entitled to protectfor a reasonable time. May v. Young, 125 Conn. 1, 7,2 A.2d 385 (1938). The trial court concluded, however,that the covenant unreasonably interfered with thepublic interest because the lack of an explicitgeographic limitation rendered the covenantunreasonable with respect to its scope and would permitthe plaintiff to maintain a monopoly. We disagree.

The trial court reasoned that because thecovenant lacked an explicit geographic limitation,an unrestricted section of the population wouldbe prohibited from transacting business withthe defendant. As we noted above, however,

[18 Conn. App. 537]

     the covenant is, in fact, geographically limitedto that area in which the customers of the plaintiffare located. Moreover, even within that geographic area,the defendant is prohibited from transacting businessonly with the customers of the plaintiff's wholesaletobacco business with whom he had dealt or whose identity hehad discovered while he was employed by the plaintiff.The fact that the defendant is prohibited from doingbusiness with this limited group of individuals doesnot support the trial court's conclusion that anunrestricted section of the populace would be affectedby the covenant.

The trial court also concluded that the lack of ageographic limitation supported an inference that theplaintiff was trying to maintain a monopoly in thewholesale tobacco business. No evidence was presentedconcerning the market share of either party. The recordcontains no support for the conclusion that theplaintiff was attempting to create or maintain amonopoly in the wholesale tobacco business. Because thecovenant was reasonably limited as to geographic area,there was no basis from which the trial court coulddraw an inference, even if such an inference werepermissible, that the plaintiff was attempting tomaintain a monopoly.

Because the protection of customers is a legallyrecognized interest and because the covenant is notunreasonable with respect to the scope of its effect onthe public interest and there is no evidence toindicate that it would permit the plaintiff to createor maintain a monopoly, we conclude that the covenantdoes not unreasonably interfere with the public'sinterests.

In order for a covenant to be valid and enforceable,it must be reasonable with respect to all five criteriaset forth in Scott v. General Iron & Welding Co., supra.Thus, We also must evaluate the reasonableness of thecovenant with respect to the time limitation of the covenant,the restriction imposed

[18 Conn. App. 538]

     on the employee's ability to pursue his occupation andthe degree of protection afforded to the employer bythe covenant. We conclude that the covenant is alsoreasonable with respect to these criteria.

The covenant prevents the defendant from transactingbusiness with customers of the plaintiff for a periodof two years after leaving the plaintiff's employ. Sucha two year restriction is clearly reasonable. SeeRobert S. Weiss & Associates, Inc. v. Wiederlight, supra(two year restriction upheld). Scott v. General Iron &Welding Co., supra (five year restriction upheld); Mayv. Young, supra (two year restriction upheld).

As to the remaining criteria, the protection of anemployer's interest in his customers through the use ofsimilar covenants restricting an employee from entryinto the employ of or selling to or soliciting anemployer's customers, has been held reasonable withrespect to both the degree of protection afforded anemployer and the restriction placed on an employee'spursuit of his or her occupation. See; Robert S. Weiss& Associates, Inc. v. Wiederlight, supra. May v. Young,supra.

Because the restrictive employment covenant at issueis reasonable with respect to the five Scott criteria,and thus valid and enforceable, we conclude that theplaintiff is entitled to enforcement of the covenantand that the trial court erred in rendering judgmentfor the defendant.

There is error, the judgment is set aside and thecase is remanded for further proceedings consistentwith this opinion.

In this opinion the other judges concurred.

1. The plaintiff subsequently revised its complaint toeliminate the claim for injunctive relief.

2. The fact that the restrictive employment covenantat issue is an antisales covenant, rather than anantisolicitation covenant, does not automaticallyrender it unenforceable. Although, as we noted in ourprevious opinion in this case, an antisales covenant,which prohibits an employee from transacting businesswith customers of the former employer, imposes agreater burden on the public interest than anantisolicitation covenant, which prohibits only thesolicitation of such customers, an antisales covenantmay be valid if it is reasonable with respect to thefive criteria of Scott v. General Iron Welding Co.,171 Conn. 132, 137-38, 368 A.2d 111 (1976) New Haven TobaccoCo. v. Perrelli, 11 Conn. App. 636, 639-40, 528 A.2d 865(1987). In May v. Young, 125 Conn. 1, 2 A.2d 385 (1938), arestrictive covenant was held valid despite the fact that itprevented the employee from entering into the employ ofany client of the former employer. Similarly, inRobert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525,546 A.2d 216 (1988), the covenant that was heldvalid prohibited the employee from soliciting orselling to customers of the plaintiff employer.Page 539

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