New England Canteen Service, Inc. v. Ashley
363 N.E.2d 526, 372 Mass. 671, 1977 Mass. LEXIS 966 (1977)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Non-competition covenants are enforceable only to the extent necessary to protect an employer's legitimate business interests, such as trade secrets, confidential data, or goodwill generated by the employer. An employer seeking enforcement must prove the existence of such a protectable interest, and its own material breach of the contract may preclude enforcement.
Facts:
- New England Canteen Service, Inc. (plaintiff) operated a food service business, preparing and furnishing food items to drivers for sale at various establishments in Worcester County.
- On September 7, 1973, New England Canteen entered into similar written agreements with Raymond Ashley and William Chenevert (defendants), under which the plaintiff would sell food items to the defendants, who would then sell them from trucks bearing the plaintiff's insignia at prices and locations determined or approved by the plaintiff.
- The agreements included a non-competition covenant that purported to restrain Ashley and Chenevert from selling general food and refreshments to customers with whom they had dealings for New England Canteen, within a 50-mile radius of Worcester, for 18 months after termination.
- New England Canteen required Ashley and Chenevert to pay a $150 monthly "franchise fee," which was not stipulated in the written agreements and which the trial judge found to be "extra to the terms of the agreement."
- New England Canteen failed to furnish Ashley and Chenevert with the management and supervisory assistance provided for by the agreements.
- Due to the continued enforcement of the unauthorized franchise fee and a rise in the price of goods sold, Ashley and Chenevert terminated their relationships with New England Canteen on November 19, 1975.
- After termination, Ashley and Chenevert proceeded to sell food items, purchased from alternative sources, at many of the same stops they serviced during their relationship with New England Canteen.
Procedural Posture:
- New England Canteen Service, Inc. filed a complaint in Superior Court against Raymond Ashley and William Chenevert, seeking injunctive relief and damages for alleged violation of non-competition covenants.
- Ashley and Chenevert filed counterclaims, which included a request for the return of "franchise fees."
- The trial judge in Superior Court dismissed New England Canteen's complaint, along with most of the defendants' counterclaims, but allowed the counterclaim for the return of franchise fees.
- The trial judge ordered an accounting for the franchise fees paid by the defendants and referred this matter to a master.
- New England Canteen Service, Inc. (appellant) sought review in the Appeals Court prior to any action by the master regarding the accounting.
- The Supreme Judicial Court of Massachusetts transferred the case from the Appeals Court for its own review.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employer have a legitimate business interest in enforcing a non-competition covenant against former employees when the employer fails to demonstrate that it generated the goodwill sought to be protected and has materially breached the underlying contract?
Opinions:
Majority - Liacos, J.
No, an employer does not have a legitimate business interest in enforcing a non-competition covenant when it fails to demonstrate that it generated the goodwill sought to be protected and has materially breached the underlying contract. The court affirmed the trial judge's dismissal of the plaintiff's complaint, holding that non-competition covenants are enforceable "only to the extent that they are necessary to protect the legitimate business interests of the employer." These legitimate interests typically fall into three categories: trade secrets, confidential data, and goodwill. The trial judge found that there were no trade secrets or unique business methods involved, and crucially, that "whatever good will exists [was] generated by the defendant." The Supreme Judicial Court reviewed this finding, applying the "clearly erroneous" standard for findings of fact, and found no basis to reverse it. Since the plaintiff failed to carry its burden of persuasion as to the existence of a valid goodwill interest, it did not establish the threshold requirement for injunctive relief. The court concluded that the plaintiff's purpose in attempting to enforce the covenant was to protect itself from ordinary competition, which is impermissible. Furthermore, the court noted that even if a protectable business interest were assumed, the trial judge's findings of material breaches by the plaintiff (failure to furnish management assistance and collection of an unauthorized franchise fee) would independently serve as a basis to deny injunctive relief.
Analysis:
This case significantly clarifies the strict scrutiny applied to non-competition covenants, underscoring that they are disfavored restraints on trade. It solidifies the principle that such covenants are enforceable only to protect demonstrably legitimate business interests—specifically, interests generated by the employer, such as goodwill associated with the business itself rather than the individual employee. The ruling also emphasizes that an employer's own material breach of contract can vitiate its right to enforce other contractual provisions, like restrictive covenants. Future cases will require employers to present clear evidence of protectable interests and demonstrate their adherence to the contract's terms to enforce non-competes.
