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Alaska Supreme Court - 757 P.2d 62
Tags: Reformation
tl;dr:
An overly-broad non-compete clause is unenforceable as written and stricken from employment contract.Video Summary
Case Summary
In the 1988 case, Data Management, Inc. v. Greene, the Alaska Supreme Court dealt with a dispute between a computer service company, Data Management, Inc., and its ex-employees, James Greene and Richard Van Camp. The company accused them of violating a non-compete agreement that prohibited them from engaging in a competing business in Alaska for five years after leaving the company. Greene and Van Camp had started their own computer service company and acquired some of Data Management's previous clients.
Initially, the trial court granted an injunction to enforce the non-compete agreement. Later, it reversed its decision, declaring the agreement excessively broad and unenforceable. Data Management appealed this decision. The Alaska Supreme Court ruled that an overly broad non-compete agreement could be made enforceable by reasonably altering it, unless the employer had created it in bad faith.
The court assessed the reasonableness of the agreement--that is, whether it sufficiently protected the company's interests without putting undue burden on the employees or causing public harm. They found it to be excessively broad, as it encompassed all types of computer services in the entire state of Alaska. The court ruled that the agreement could be modified to reasonably cover a specific geographical range and duration. It also stated that if Data Management had not acted in bad faith while creating the agreement, it could be made enforceable after alterations.
This case is significant because it demonstrates the legal principle concerning non-compete agreements. These are contracts that limit an employee's ability to work for a competitor or start a competing business after leaving their employer. Courts usually disfavor these agreements as they restrict trade and employment, but they may be enforced if they are reasonable and necessary for protecting the employer's legitimate interests. Non-compete agreements need to balance the interests of the employer, employee, and the public, while acknowledging employers' right to safeguard their business assets and goodwill and employees' right to pursue career opportunities.
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Data Management, Inc. sued former employees James H. Greene and Richard Van Camp for breaching a covenant not to compete. The court initially granted a preliminary injunction but later found the covenant wholly unenforceable and granted summary judgment to Greene and Van Camp. Data Management appealed, and the court is considering whether an overly broad covenant not to compete can be altered to make it legal. Three approaches have been found in other jurisdictions: (1) holding overbroad covenants unconscionable and unenforceable, (2) using the "blue pencil" rule to delete words in the covenant to make it enforceable, and (3) seeking a more nuanced approach that balances protecting parties' rights to enter into contracts and protecting them from illegal contracts. The court rejects the first two approaches and seeks a more nuanced solution.
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