Thank you for sharing!

Your article was successfully shared with the contacts you provided.
The unexpectedly rough-and-tumble world of the pizza-box business came to light this week in Olympic Paper Company v. Dubin Paper Company and Brian Reddy in Philadelphia Common Pleas Court. The court upheld a non-compete clause of the Olympic Paper Company — a seller of disposable paper products serving the food service industry — against Brian Reddy, a former truck driver for the company who worked his way up to a sales position at Olympic. Three weeks after being terminated from Olympic in September 2000, Reddy became a salesman for a direct competitor of Olympic, the Dubin Paper Co. “Olympic demonstrated that Reddy violated the restrictive covenant by knowingly soliciting Olympic’s customers in violation of the agreement,” wrote Judge Albert W. Sheppard. “Such proof establishes the requisite element of irreparable harm.” Although Olympic won, the judge softened the original terms of the agreement. The original one-year duration that Olympic sought was reduced to six months; Olympic itself modified the agreement that it sought to enforce by reducing the number of customers Reddy was forbidden to contact from 29 to 14. Sheppard said Olympic’s original agreement terms were too broad but that “the balance of harms [weighs] in favor of granting the injunction since its denial could permit Reddy and Dubin to exploit and undermine certain of Olympic’s customer relationships.” Olympic was unsuccessful in getting protection for its prices and customer lists, which the court said were not entitled to treatment as a trade secret or as confidential information. SCOPE OF AGREEMENT In April 2000, Reddy began working as a sales rep for Olympic. The company told him he would have to sign a non-compete agreement, which he did May 5. The agreement stated that for one year after a termination of his employment with Olympic, Reddy could not become involved either directly or indirectly with a business enterprise that is engaged in “substantially the same business as [Olympic] and solicit business from [Olympic's] customers who have locations within [Olympic's] trading area.” The non-compete covered a geographic range of “a radius of 150 miles” from Olympic’s place of business at 7500 State Road in Philadelphia. After five months as a salesman for Olympic, Reddy was fired. The company’s reason was that Reddy failed to bring in new business, did not visit customers and did not collect money owed to the company. However, Sheppard pointed out that the only evidence of Reddy’s poor performance was Olympic’s testimony in court. Reddy then went to work for Dublin. Reddy attempted to contact at least 20 Olympic customers while at his new job. Although there was no evidence that Reddy spread any disparaging rumors regarding Olympic — or that Olympic’s sales decreased after Reddy’s firing — “Reddy’s actions appear[ed] to violate the restrictive covenant which is prima facie enforceable in equity, once modified by the court,” said Sheppard. STANDARD OF REVIEW Restrictive covenants may only be enforced at equity if they pass a three-part reasonableness test, according to the opinion. In order to be enforceable, the agreement must be: � Ancillary to an employment relationship between the parties to the covenant; � Reasonably limited in duration and geographic scope; � And necessary to protect a legitimate business interest of the employer without imposing an undue hardship on the employee. The agreement was ancillary to the employment relationship because it was supported by adequate consideration. Although Reddy claimed he never received the $100 signing bonus he was promised, Olympic said it instead agreed to forgive a debt from Reddy. But the scope of protection that Olympic sought in its agreement was overly broad. Where a restrictive covenant seeks to protect customer relationships, the duration is considered reasonable if it is “no longer than necessary for the employer to put a new man on the job and for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers,” Sheppard quoted. “On its face,” Sheppard said, “the covenant seems broader than necessary to protect Olympic’s legitimate interests.” Because Olympic modified its request for injunctive relief to lessen the number of customers Reddy was forbidden to contact, Sheppard said, “it appears that even Olympic concedes its original request was too broad.” “Reddy was only in his job as a sales representative for … approximately five months. It is not reasonable that the covenant should be enforced for a period of time inordinately longer than the time during which Reddy was working as a sales representative.” The court therefore limited the duration of the non-compete period to six months and enjoined Reddy from contacting “only those customers with whom Reddy had personally established goodwill on Olympic’s behalf.” As a result, Reddy may not contact Wundebar, Classis Sub/Pizza, Mount Airy Best, Mystic Pizza, Oak Lane Pizza, Alladin Pizza, Stenton Pizza, Giovanni Pizza, Penrose Diner, Teddy’s Pizza Express, Dwight’s BBQ, Pizza Station, Victoria’s, Area Foods and Randazzo’s until March 15, 2001. EMPLOYEE TERMINATION Sheppard pointed out that under a 1995 Superior Court decision, Insulation Corp. of America v. Brobston, an employer’s termination of an employee for reasons beyond the employee’s control can be considered in determining whether a restrictive covenant is enforceable. The Brobston court reasoned that “it is unreasonable as a matter of law to permit the employer to retain unfettered control over that which it has effectively discarded as worthless to its legitimate business interests” — i.e., the fired employee. However, mere termination of an employee does not serve to bar an employer’s injunctive relief. Where an employee intentionally engaged in conduct that caused his termination, the employer’s right to injunctive relief would survive. But the reasonableness of enforcing the restriction should be handled on a case-by-case basis, Sheppard said. Here, the judge said the record did not clearly demonstrate exactly why Reddy was terminated. “It does not appear that Olympic discarded its right to protect its customer goodwill when it terminated Reddy. Rather, the circumstances of this case do weigh in favor of striking a balance between protecting Olympic’s customer goodwill without imposing an undue hardship on Reddy.” NO TRADE-SECRET PROTECTION Olympic said it was trying to compel the return of any “confidential” documents — including documents those to its sales methods, customer lists and other information — because they were entitled to trade secret protection. Although Pennsylvania recognizes that trade secrets, customer goodwill and specialized training and skills gained from the employer may be protected through a general restrictive covenant, these things did not qualify as trade secrets, Sheppard said. In Robert Half of Pennsylvania, Inc. v. Shana Feight — decided this April in Pennsylvania’s Court of Common Pleas — the court distinguished the need to protect business relations with its legal clients and candidates from protecting the confidentiality of the identities of those clients and candidates, and held that the latter were not “trade secrets.” “Equity will not protect mere names and addresses easily ascertainable by observation or reference to directories,” said Sheppard. Although the Pennsylvania Superior Court recently recognized that a customer list or other data compilation gathered through a material investment of time and expense could qualify as a trade secret or confidential information, that would not apply here, he said. “Olympic did not demonstrate that it invested time, effort or resources to cultivate its customer list. Nor did Olympic show why and how its prices constitute a trade secret. Rather, this information can be obtained by asking its customers how much they pay for pizza boxes and other paper products, and then, a competitor like Dubin will seek to beat those prices.” Nonetheless, since the employment agreement required an employee to return all of Olympic’s property upon termination, “Reddy and/or those working in concert with him must return any price books, customer lists and other records which rightfully belong to Olympic, so long as Reddy currently has these items in his possession.” The partial grant and denial of the preliminary injunction were conditioned on Olympic’s filing a bond of $25,000 with the prothonotary within five days of the Dec. 29 order.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.