– CAB sought compensatory and injunctive relief…at first, competition was un-reasonably broad, but modified this in the form of injunctive relief, breach of covenants, unfair competition, and breach of duty of loyalty.
– CAB, nation wide debt collecting firm, 48 states plus Hawaii, hired Ingram in 1970, promoted to northern region manager in 1977, Nashville.
o Top five highest paid employees when he resigned on Feb, 22 1979.
o Defendant, Goostree – hired as collector in 1972, promoted district manager in Nashville in 1977.
o Defendant, Bjorkholm – hired as salesman on May, 5th, 1977.
– In February 1979, Ingram started his own collection agency, using information from CAB, and doing the same work that he had done previously for the firm.
o Master client lists and other information from CAB.
– Goose, and Bjorkholm resigned in 1979 and started Ingram, Inc…Ingram was 60% and the other two were 10% a piece.
o Around March 22, 1979, they started functioning as a collection agency and was using contacts and info from CAB.
– ***Ingram tried to use Ray Moss…court rejected this…didn’t consider a very lengthy continuation of work as was in this case.*** Moss doesn’t address how long after he worked for.
– Supreme Court of Tennessee
– (chancery court) Chancellor awarded $80,000 in damages for breach of covenants.
– Court of appeals reversed the Chancellor, on the issue of the covenant not to compete, holding that the covenants were un-enforceable for lack of consideration.
Additionally, the appeals court said that the covenant was un-reasonably broad in geographic and time limitations
– Raises an issue regarding the consideration necessary to support such a covenant when it is entered into after employment has begun.
– Was the length of work, after covenant time, substantial performance to legally enforce consideration? Was there significant additional benefits after the defendants left BAC?
– As a general rule, restrictive covenants in employment contracts will be enforced IF they are reasonable under the particular circumstances.
o Reasonable, refers to considerations in such matters as territorial and time limitations.
– We (court) holds that a covenant signed prior to, contemporaneously with or shortly after employment begins is part of the original agreement, and that therefore, under Ramsey, it is supported by adequate consideration….
– Length of employment, the covenant is binding against them.
o Left voluntarily, no evidence that CAB acted in bad faith.
o Length of it is sufficient. In this case, it is sufficient to constitute substantial performance.
– Both defendants, received additional benefits above and beyond continued employment which they would not have received had they not signed the covenant. Salary increases, bonuses, stuff they received because they continued to work at BAC due to signing the covenant.
– Court of appeals decision is reversed.
– Chancellor’s decision is affirmed.
1. Whether future employment of an at-will employee constitutes consideration for a non-competition covenant?
a. “That employment, even for an indefinite period of time, subject to termination at the option of the employer is sufficient consideration to support such a contract”
b. Ramsey case is the authority and states that employment is sufficient consideration for a covenant which part of the original employment agreement….must be informed of this during employee negotiations before employment, must be first day of work, or shortly there after…or there is NO element of BARGAINING.
2. Ray moss case – whether promise of continued employment standing alone is sufficient consideration for a non-competition covenant signed after employment has begun. This is good, when it’s the only issue…
a. Did not address the issue of consideration when employment has in fact continued for an appreciable period of time.
3. Hoyt – addresses this issue one step further….How long has the employee worked at the company AFTER signing the covenant?
– Uses ray moss to his defense.
– “Thus if the terms of the original agreement do not include a covenant not to compete, any subsequent covenant must be supported by some consideration other than mere continued employment under a contract terminable at will.”
o It wasn’t freely bargained for…they signed AFTER they were working so didn’t have an even playing field.
– The promotions of these employees had nothing to do with the covenant signed…just continuing to work, shouldn’t be enough for performance.