Whitmyer Bros., Inc. v. DOYLE
274 A.2d 577, 58 N.J. 25, 1971 N.J. LEXIS 222 (1971)
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Rule of Law:
An employer seeking to enforce a post-employment restrictive covenant against an employee must demonstrate a reasonable need to protect legitimate business interests, such as trade secrets, confidential information, or customer relationships, without imposing undue hardship on the employee or injuring the public interest.
Facts:
- Whitmyer Bros., Inc., a New Jersey corporation, was primarily engaged in erecting highway guard rails, signs, and fences.
- James K. Doyle began working for Whitmyer in 1949 and later became an officer and director, though he claimed his primary role was collecting accounts receivable.
- On March 2, 1967, Whitmyer and Doyle executed an employment agreement containing a restrictive covenant, prohibiting Doyle from being connected with a competing business for five years after termination in certain specified states.
- Doyle gave 90 days' notice and terminated his employment with Whitmyer, effective March 2, 1970.
- In April 1970, Doyle, along with George Smith (a former Whitmyer employee), formed Statewide Hi-Way Safety, Inc.
- Statewide took over the guard rail and fence division of J. Marienski Contracting Company, which had previously competed with Whitmyer.
- Richard Wetteran, another former employee of Whitmyer, joined Statewide on April 20, 1970.
- Doyle, Smith, and Wetteran asserted that Whitmyer's bidding procedures and constituent elements (materials, labor, equipment, insurance, overhead, profits) were general industry knowledge, not trade secrets.
Procedural Posture:
- On June 17, 1970, Whitmyer filed a complaint in the Chancery Division (trial court) against Doyle, Statewide, Smith, and Wetteran, seeking enforcement of the restrictive covenant and other relief.
- Defendants filed an answer and counterclaim, and both parties submitted numerous affidavits.
- The trial judge granted a preliminary injunction restraining Doyle and those acting in concert with him from competing with Whitmyer, stating he would determine the reasonableness of the covenant's breadth later.
- Doyle applied to the Appellate Division (intermediate appellate court) for a stay of the injunction and for leave to appeal.
- The Appellate Division granted a temporary stay but subsequently denied leave to appeal and vacated the stay.
- The Supreme Court of New Jersey (this Court) then stayed the interlocutory injunction and granted Doyle leave to appeal, specifically directing the parties to address "what kind of interest will support this kind of restrictive covenant."
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Issue:
Does an employer's assertion of a restrictive covenant and its breach, without a suitable showing of necessary legitimate interests, undue hardship on the employee, or injury to the public, warrant a preliminary injunction against a former employee's competition?
Opinions:
Majority - Jacobs, J.
No, an employer's mere assertion of a restrictive covenant and its breach does not automatically warrant a preliminary injunction; such relief requires a suitable showing that the restraint is necessary to protect the employer's legitimate interests, would not impose undue hardship on the employee, and would not injure the public. The Court reversed the preliminary injunction because the trial judge had not made findings on the controverted factual issues and did not apply the limiting considerations set forth in Solari Industries, Inc. v. Malady. While an employer has a legitimate interest in protecting trade secrets, confidential business information, and customer relationships, general knowledge or skill in the trade does not qualify for protection, nor does the prevention of competition itself. The affidavits presented by Whitmyer claiming trade secrets in bidding procedures were "flatly and fully denied" by the defendants, indicating a doubtful claim. Furthermore, most of Whitmyer's customers were governmental entities for whom work was obtained through public bidding, where price was the determining factor, making harm to customer relationships unlikely. The trial court erred by focusing narrowly on the agreement's violation rather than the three-part test established in Solari.
Analysis:
This case reinforces the strict scrutiny applied to post-employment restrictive covenants, particularly when seeking preliminary injunctive relief. It clarifies that such covenants are not presumptively enforceable merely because they exist; employers bear a significant burden to prove they have "legitimate interests" (like actual trade secrets or jeopardized customer relationships) that outweigh the employee's right to use general skills and knowledge or the public interest in competition. The decision highlights the importance of thorough factual findings regarding confidentiality and customer relationships before imposing restrictions on an individual's livelihood, influencing how courts assess the balance between employer protection and employee mobility.
