Osage Glass, Inc. v. Donovan

Supreme Court of Missouri
693 S.W.2d 71 (1985)

ELI5:

Rule of Law:

An employer has a legally protectable interest in its customer contacts, and a covenant not to compete is enforceable against a former employee who had substantial and regular customer interaction, even in the absence of trade secrets or confidential customer lists.

Facts:

On April 7, 1980, Daniel J. Donovan was hired by Osage Glass, Inc. (formerly Glass Specialty Company) as a glass installation trainee.
Upon being hired, Donovan signed an employment contract containing a covenant not to compete with the company in the automotive glass installation business within Missouri for three years after his employment terminated.
In November 1980, Donovan was promoted to operations manager for the company's Kansas City location.
As operations manager for nearly two years, Donovan was in charge of the Kansas City facility and was the primary person with technical knowledge who had regular, direct contact with the company's customers.
In October 1982, Donovan resigned from his position at Osage Glass.
Immediately after resigning, Donovan accepted employment with a direct competitor, W.M. Kryger, d/b/a Installers Unlimited, in Kansas City, Missouri.

Procedural Posture:

Osage Glass, Inc. (plaintiff) sued Daniel J. Donovan (defendant) in a Missouri trial court, seeking a temporary and permanent injunction to enforce the non-compete agreement.
The trial court entered a final judgment denying the injunction, finding that Osage Glass did not possess a protectable interest such as a trade secret or confidential customer list.
Osage Glass, as appellant, appealed the trial court's decision to the Missouri Court of Appeals, Western District.
The Court of Appeals affirmed the trial court's judgment, reasoning that the harm to Donovan from the injunction outweighed the potential harm to Osage Glass.
The Supreme Court of Missouri then granted transfer to review the case.

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Issue:

Does an employer have a legally protectable interest in its customer contacts sufficient to enforce a covenant not to compete against a former employee who had substantial interaction with those customers, even if the employee did not possess trade secrets or confidential customer lists?

Opinions:

Majority - Blackmar, J.

Yes. An employer has a legally protectable interest in its customer contacts, which is sufficient to enforce a reasonable covenant not to compete. The court reasoned that while covenants against competition are carefully restricted, they are enforceable when they serve to protect a legitimate interest of the employer, such as the goodwill of a business. The court held that even without trade secrets or confidential customer lists, an employer's interest in its customer contacts is a protectable interest. Donovan, as the operations manager with substantial and regular customer contact, was in a position where he could influence customers and divert business to his new employer. The purpose of the non-compete covenant is to prevent the employee from being in a situation where such influence could be used to the former employer's detriment, and it is not necessary for the employer to prove actual damage has occurred to obtain an injunction.

Dissenting - Welliver, J.

This justice dissented without a written opinion.

Analysis:

This decision clarifies that in Missouri, a non-compete agreement can be enforced based solely on the protection of 'customer contacts' as a legitimate business interest. It lowers the burden for employers, who no longer need to prove the existence of trade secrets or proprietary information to enforce such a covenant. The legal focus shifts from the type of information an employee possesses to the nature and significance of the employee's relationship with the employer's customers. This precedent strengthens an employer's ability to protect its customer base from former employees who held key, client-facing roles by preventing them from immediately competing in the same market.

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