Gill v. Computer Equipment Corp.
292 A.2d 54, 266 Md. 170, 1972 Md. LEXIS 726 (1972)
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Rule of Law:
An indefinite employment contract is presumed to be at-will, and absent a mutual understanding or clear contractual term for a definite period, parol evidence of assumptions or prior discussions is insufficient to establish a fixed term if the written contract is unambiguous and contains an integration clause. Restrictive covenants not to compete are enforceable if they are reasonable as to time and scope, meaning no wider than necessary to protect the employer's business and not unduly burdensome on the employee, even if they lack an explicit territorial limitation if limited to specific customers.
Facts:
- Earl F. Gill and B.J. Fadden were partners in a manufacturers' representative business called Eastronics, which later incorporated.
- In 1969, Gill and Fadden engaged in discussions with Computer Equipment Corporation (Computer) regarding a business arrangement.
- These discussions resulted in a contract where shares of Eastronics stock were exchanged for Computer shares, and Gill and Fadden were employed by Computer at an annual salary of $25,000.
- A new 'Peripheral Systems Division' of Computer was established to take over Eastronics' business, and the contract included a bonus provision for Gill and Fadden based on this division's earnings for calendar years 1969, 1970, and 1971.
- The contract also contained a covenant not to compete, stating that if Gill left Computer's employment for any reason, he would not compete with Computer for two years, defined as working for or selling to manufacturers represented by the Peripheral Systems Division in the year prior to his termination.
- The employment provision of the contract stated that Gill and Fadden would be employed at an annual salary of $25,000 and devote full time, but it was silent regarding the period of employment.
- On July 8, 1970, Computer terminated Gill's employment by telegram, citing unsatisfactory sales development.
Procedural Posture:
- Earl F. Gill (Gill) sued Computer Equipment Corporation (Computer) in a state trial court for breach of contract and a declaratory judgment regarding a covenant not to compete.
- A jury returned a verdict in favor of Gill in the amount of $20,000 on the breach of contract claim.
- The trial court set aside the jury verdict and entered judgment n.o.v. (judgment notwithstanding the verdict) in favor of Computer on the breach of contract claim.
- The trial court also ruled against Gill on the declaratory judgment count, finding the covenant not to compete to be valid.
- Gill filed appeals from both of these actions of the trial court to the Maryland Court of Appeals.
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Issue:
1. Does an employment contract, silent as to duration but containing an integration clause, establish a fixed term of employment when an employee asserts prior oral discussions and assumptions about a three-year period, despite the employer's denial and other evidence? 2. Is a covenant not to compete, which restricts an employee for two years from working for competitors or customers of a specific division of the employer but lacks an explicit territorial limitation, enforceable?
Opinions:
Majority - Smith, J.
No, an employment contract that is silent as to duration and contains an integration clause does not establish a fixed term of employment, even if the employee asserts prior oral discussions and assumptions about a three-year period, because such an agreement is presumed to be at-will. The Court found that the written contract was not ambiguous regarding the term of employment; Section 11.01 stated employment would be 'effective immediately upon Closing' at an annual salary but was 'silent as to the period of employment.' The bonus provision referring to specific calendar years did not create ambiguity about the term of employment, but rather the basis for bonuses. Furthermore, Section 13.04, the 'Entire Agreement' clause, stipulated that it superseded all prior oral understandings. Even if parol evidence of prior discussions were admissible, Gill's testimony primarily indicated his 'assumption' of a three-year term, and there was no evidence that Computer bound itself to such a term. Citing McCullough Iron Co. v. Carpenter and Baltimore & O.R.R. v. Stewart, the Court reaffirmed the rule that an indefinite hiring is prima facie a hiring at will, and parties are bound by the contract itself, not by a witness's assumptions or beliefs. Yes, a covenant not to compete that restricts an employee for two years from working for competitors or customers of a specific division of the employer, despite lacking an explicit territorial limitation, is enforceable if it is reasonable as to time and scope. The Court applied the general rule from Ruhl v. Bartlett Tree Co. and MacIntosh v. Brunswick, which holds that restrictive covenants are sustained if confined within reasonable limits as to area and duration, protect the employer's business, do not impose undue hardship on the employee, and do not disregard public interest. Although the covenant lacked a territorial limitation, its scope was effectively limited to 'customers of Peripheral Systems Division of the year prior to termination of employment.' The Court found this restriction to be substantially identical to the covenant upheld in Tuttle v. Riggs-Warfield-Roloson, where a limitation to 'customers' was deemed valid. The restriction was found reasonable because Gill had significant contact with customers of that division, and he remained free to operate elsewhere and with other types of customers.
Analysis:
This case significantly reinforces Maryland's strong presumption of at-will employment when a written contract is silent on duration and includes an integration clause, making it challenging for employees to use parol evidence to establish a fixed term. It also clarifies the enforceability of non-compete clauses, affirming that a lack of explicit territorial restriction is not fatal if the clause is reasonably limited by other factors, such as specific customers or a particular business division. The reliance on Tuttle v. Riggs-Warfield-Roloson provides clear precedent for customer-based restrictive covenants, offering employers flexibility in drafting such agreements to protect their proprietary customer relationships.
