Wood v. May
73 Wash. 2d 307, 438 P.2d 587 (1968)
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Rule of Law:
A court of equity may modify and partially enforce a covenant not to compete found to be unreasonable as to time or geographic area, rather than voiding the entire covenant. The court will enforce the restriction to the extent that it is reasonable and necessary to protect the employer's legitimate business interests.
Facts:
- In November 1961, Gordon S. Wood, a master horseshoer, employed William R. May as an apprentice.
- In January 1962, Wood and May signed a contract in which Wood agreed to teach May the trade of horseshoeing.
- In exchange for the training, May agreed that for five years after leaving Wood's employment, he would not engage in horseshoeing within a 100-mile radius of Wood's business in Spanaway.
- May worked for Wood for two years, becoming a proficient horseshoer and the primary contact for many of Wood's customers.
- In March 1964, May terminated his employment and immediately established his own competing horseshoeing business five miles away in Tacoma.
- May subsequently secured a substantial number of Wood's former customers.
Procedural Posture:
- Gordon S. Wood (plaintiff) filed an action in the trial court to enjoin William R. May (defendant) from violating the non-compete agreement.
- At the close of the plaintiff's evidence, the trial court found the 100-mile geographic restriction to be unreasonable.
- The trial court, concluding the contract was indivisible and could not be modified, dismissed the case.
- Wood (appellant) appealed the trial court's dismissal to the Supreme Court of Washington.
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Issue:
May a court of equity modify and enforce a covenant not to compete that is unreasonable as to time and geographic area, rather than voiding the entire covenant?
Opinions:
Majority - Finley, C. J.
Yes. A court of equity has the power to modify a covenant not to compete that is unreasonable as to time or area and enforce it to a reasonable extent. The court rejects the older 'blue pencil test,' which required mechanical divisibility of the contract's language. The better approach is to determine whether partial enforcement is possible without injury to the public and without injustice to the parties. The contract was supported by adequate consideration—Wood's training in exchange for May's promise not to compete. While the 100-mile, 5-year restriction was unreasonable, the trial court erred by refusing to consider modifying it. Therefore, the case is remanded for the trial court to determine and impose reasonable restrictions on May's competitive activities.
Dissenting - Rosellini, J.
No. The court should not enforce a contract that imposes an undue hardship on the employee, and courts should be more reluctant to enforce restrictive covenants in employment contracts than in contracts for the sale of a business. The 5-year, 100-mile restriction is clearly unreasonable and oppressive, as it would force May to either change his only learned occupation or move his family. The harm to Wood is minimal compared to the hardship imposed on May. The court should not use its equity power to rewrite a harsh and improvident bargain for the employer. Therefore, the trial court's dismissal should be affirmed.
Analysis:
This decision represents a significant shift from rigid, formalistic approaches like the 'blue pencil test' to a more flexible, modern rule of reasonableness for non-compete covenants. It empowers courts to reform overly broad restrictive covenants, balancing the employer's legitimate interest in protecting goodwill against the employee's right to earn a livelihood. This ruling discourages employers from drafting excessively broad covenants with the expectation that courts will strike them down entirely, while also preventing employees from escaping all obligations of a covenant that is only partially unreasonable. The case establishes a precedent for judicial modification, which has become the majority rule in many jurisdictions.
