Hebb v. Stump, Harvey & Cook, Inc.
334 A.2d 563, 1975 Md. App. LEXIS 545, 25 Md. App. 478 (1975)
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Rule of Law:
A restrictive covenant in an employment contract, including a non-compete clause, is enforceable if it is reasonably necessary to protect the employer's business and does not impose undue hardship on the employee or disregard public interest, even if the employee was terminated for cause, and courts may sever and partially enforce overly broad provisions.
Facts:
- James Hebb (Hebb) began employment with Stump, Harvey and Cook, Inc. (Stump), an insurance agency.
- On May 21, 1971, several months after Hebb started work, Stump and Hebb executed an employment contract.
- The contract included a non-competition clause (Paragraph 4) preventing Hebb from soliciting Stump's customers for a period of one or two years after termination, and a clause (Paragraph 5) outlining termination for cause.
- In December 1973, Stump terminated Hebb’s employment for cause.
- The non-competition clause lacked a specific geographical limitation and sought to restrict Hebb from dealing with 'prospective customers' of Stump.
- Hebb had prior experience in the insurance industry, having signed a non-competition clause with one former employer but not with another.
Procedural Posture:
- Stump, Harvey and Cook, Inc. (Stump) filed a Bill of Complaint in the Circuit Court of Baltimore City (trial court) seeking an injunction to prevent James Hebb (Hebb) from violating non-competition covenants in his employment contract.
- The trial judge, William J. O’Donnell, issued an injunction against Hebb, but limited its scope to customers of Stump who became customers after May 21, 1971, and specifically excluded customers Hebb brought with him and 'prospective customers' of Stump.
- Hebb appealed the trial court’s decision to the Maryland Court of Special Appeals, raising three contentions challenging the applicability and scope of the agreement and the justification of the injunction.
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Issue:
Did the trial court correctly interpret and enforce the restrictive covenant against competition in an employment contract after an employee's termination for cause, particularly regarding its scope and the severability of overbroad provisions?
Opinions:
Majority - Thompson, J.
Yes, the trial court correctly interpreted and enforced the restrictive covenant. The court affirmed that the non-competition provisions in Paragraph 4 of the employment contract were applicable and binding even though Hebb's employment was terminated 'for cause.' Adopting the trial court's reasoning, the court emphasized that a contract must be construed in its entirety, giving effect to each clause, and that the objective theory of contracts dictates that written language governs unless ambiguous. The phrase 'if...you cease to be employed' in Paragraph 4 was deemed broad enough to cover all forms of termination, including for cause. The court also upheld the trial court's decision to partially enforce the covenant, agreeing that while the restriction against dealing with 'prospective customers' was over-broad and thus unenforceable, it was severable from the rest of the agreement. The court reiterated Maryland's standard for restrictive covenants: they are enforceable if supported by adequate consideration, ancillary to the employment, and confined within limits no wider than reasonably necessary for employer protection, without undue hardship on the employee or public detriment. It cited Williston on Contracts and the Restatement of Contracts to support the 'blue-pencil' doctrine, allowing enforcement of lawful, separable restrictive promises even if others are excessive, provided partial enforcement causes no public injury or injustice. Finally, the court agreed with the trial court that 'our customers' in the non-compete clause reasonably included customers generated by Hebb during his employment with Stump, as such patronage contributes to the employer's good will.
Analysis:
This case significantly clarifies and reinforces Maryland's 'blue-pencil' doctrine, allowing courts to sever and partially enforce overly broad restrictive covenants rather than invalidating them entirely. It provides employers with a degree of protection by ensuring that reasonable aspects of non-compete clauses can be enforced, even if other parts are deemed excessive. Simultaneously, it protects employees from overly burdensome restrictions by preventing the enforcement of clauses that would impose undue hardship or harm the public. This decision encourages careful drafting of restrictive covenants but provides a judicial backstop for enforcing their legitimate purposes.
