Hejl v. Hood, Hargett & Associates, Inc.
196 N.C. App. 299, 674 S.E.2d 425, 2009 N.C. App. LEXIS 377 (2009)
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Rule of Law:
A non-solicitation agreement is an unreasonable and unenforceable restraint on trade if its restrictions are overly broad and not narrowly tailored to protect the employer's legitimate business interests, such as by prohibiting contact with mere potential customers or covering territories where the employee had no customer contact.
Facts:
- In July 1991, Phillip E. Hejl was hired as an account executive by the insurance company Hood, Hargett & Associates, Inc.
- Fourteen years later, in January 2005, Hood, Hargett presented Hejl with a non-solicitation agreement and offered him $500 to sign it.
- Hejl signed the Agreement, which restricted him for two years post-termination from soliciting any person or entity to whom Hood, Hargett had sold or quoted a service in the preceding year.
- The Agreement's geographic scope was defined as Charlotte, North Carolina, and any other place in North Carolina or South Carolina where Hood, Hargett was engaged in business.
- After signing, Hejl continued to work for Hood, Hargett for two more years.
- On February 5, 2007, Hood, Hargett terminated Hejl's employment.
Procedural Posture:
- Phillip E. Hejl (Plaintiff) filed a complaint for declaratory relief in trial court, seeking to have the non-solicitation Agreement declared void.
- Hood, Hargett & Associates, Inc. (Defendant) filed an answer and a counterclaim for breach of contract.
- The trial court entered an order finding the Agreement void as a matter of law due to a lack of adequate and valuable consideration.
- The trial court dismissed Defendant's counterclaim with prejudice.
- Defendant appealed the trial court's order to the Court of Appeals of North Carolina.
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Issue:
Is a non-solicitation agreement that prohibits a former employee from contacting both actual customers and potential customers to whom the employer had merely quoted a price, across any area in two states where the employer does business, an unreasonable and unenforceable restraint on trade?
Opinions:
Majority - McGee, J.
Yes, the non-solicitation agreement is an unreasonable and unenforceable restraint on trade. While the $500 payment constituted valid new consideration for a non-compete agreement entered into during an existing employment relationship, the agreement's scope is overly broad. The court reasoned that a restriction is only reasonable to the extent it protects an employer's legitimate interest in its customer relationships. This agreement impermissibly extended to any person or entity to whom the employer had merely 'quoted' a price, which is an attempt to restrain the employee from succeeding where the employer failed. Furthermore, the geographic restriction covered any area in two states where the employer did business, rather than being limited to the territory where the employee actually had customer contacts. Because the restrictions on customers and territory were not reasonably necessary to protect the employer's business interests, the agreement is invalid.
Analysis:
This decision clarifies the dual requirements for non-compete agreements with existing employees in North Carolina, distinguishing between the existence of consideration and the reasonableness of the covenants. The court affirmed that a nominal sum like $500 can satisfy the requirement for 'new consideration,' preventing courts from second-guessing the adequacy of the payment. However, the case establishes a critical precedent that an employer's legitimate interest does not extend to 'potential' customers who never entered a business relationship. By invalidating a covenant that restricted solicitation of parties who only received a quote, the court significantly narrows the permissible scope of such agreements, forcing employers to tailor restrictions to actual customer relationships and specific geographic territories where the employee worked.
