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Hudson Foam Latex Products Inc. v. Aiken

Decided: March 10, 1964.

HUDSON FOAM LATEX PRODUCTS, INC., HUDSON CHEMICAL CORPORATION, HUDSON FOAM PLASTICS CORPORATION AND HUDSON CUSH-N-FOAM CORPORATION, PLAINTIFFS-APPELLANTS,
v.
MEYER C. AIKEN AND NOPCO CHEMICAL COMPANY, A NEW JERSEY CORPORATION, DEFENDANTS-RESPONDENTS



Conford, Freund and Sullivan. The opinion of the court was delivered by Freund, J.A.D.

Freund

Plaintiffs brought an action in the Superior Court, Chancery Division, seeking (1) to restrain defendant Aiken, a former employee, from performing services for defendant Nopco (a competitor of plaintiffs) for a period of one year, under a provision of the employment contract between plaintiffs and Aiken; (2) to restrain Aiken "from divulging any information to the defendant Nopco," under another provision of the employment contract as well as under Aiken's "duty of loyalty" to plaintiffs, and to restrain Nopco from receiving or using any such information; and (3) compensatory and punitive damages from Nopco for an alleged unlawful interference with plaintiffs' contractual relationship with Aiken, and an injunction restraining Nopco from continuing to employ Aiken for a period of one year.

Defendants moved for "summary judgment dismissing the complaint." The trial court found that two provisions of the employment contract, one involving a restraint against Aiken's employment by a competitor for a period of one year, and the second involving a covenant not to reveal information concerning the products manufactured by plaintiffs, were "so broad as to be unreasonable and therefore incapable of enforcement," and granted summary judgment in favor of both defendants. Plaintiffs then moved to amend their complaint "to assert with more particularity a cause of action based on an implied duty not to disclose trade secrets." It was claimed by plaintiffs that a cause of action based upon common law principles was included in their original complaint, because the words "and in breach of his duty of loyalty" were mentioned in addition to the charge that Aiken was "in violation of his contract." On rehearing the trial judge admitted that he had not considered these words as stating a common law cause of action, but refused to change his determination in favor of defendants, and denied plaintiffs' motion to amend the complaint. He made it clear, however, that this ruling was not to be taken as involving prejudice to the right of plaintiffs to bring an action, based upon common law principles,

for disclosure of trade secrets. From the denial of their motion to amend the complaint, and from the final judgment dismissing the complaint, plaintiffs now appeal.

Plaintiffs are related New York corporations, duly licensed to do business and having their principal offices in New Jersey. They are engaged in the manufacture and sale of polyester and polyether flexible foam cushioning and insulating materials. As already noted, defendant Nopco is a competitor in this field. Defendant Aiken was employed as a supervisor of the cutting and packaging phase of plaintiffs' operation from 1953 until April 1959, when he resigned following an injury to his hand at one of plaintiffs' plants. During this period Aiken was not under an employment contract. Later in 1959 Aiken returned to the employ of plaintiff Hudson Foam Latex Products, Inc. on a temporary basis. In October of that year Aiken was offered a permanent position provided he signed an employment agreement, and he accepted.

Section 7 of that employment contract provides:

"The Employee undertakes and agrees that he will not, for a period of one (1) year immediately following the cessation of his employment and severance of his connections with the Employer (i.e. , one year after his employment by the Employer in any capacity whatsoever shall have wholly terminated) enter the services or employ of any person, firm, partnership or corporation engaged in any business similar to that of the Employer, i.e. , the manufacture, production and/or sale of polyester, polyether, and polyformal foams and elastomeric products and/or the components or ingredients essential to and/or suitable for the manufacture and production of said products (i.e. , diisocyanates, the complementory polyfunctional components catalyst systems and foam regulating additives) nor will said Employee be any wise in any manner (directly or indirectly) associated with any such person, firm, partnership or corporation during such period of one (1) year."

We are in agreement with the conclusion of the trial court that this provision is so unreasonably broad as to be unenforceable. Contracts which impose restraints upon the right of an employee to work for competitors after terminating employment with the promisee are not, of course, invalid per se. A. Hollander & Son, Inc. v. Imperial Fur Blending Corp. ,

2 N.J. 235, 248 (1949). See generally, Blake, "Employee Agreements Not To Compete," 73 Harv. L. Rev. 625 (1960). But the legitimate interests of an employer against having an individual, whose ofttimes highly specialized training was gained at the time and expense of the employer, leave that employer and exercise his thusly acquired skill and perhaps good will for the benefit of a competitor is naturally subject to the competing interests of the employee's right to work and society's interest in free competition and trade. The balance is struck thusly: if the contractual prohibition is reasonably necessary for the protection of the employer's business and at the same time is neither unreasonably restrictive of the rights of the employee with regard to time period or territory, nor prejudicial to the public interest, it will be enforced. A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., supra , 2 N.J. , at p. 248. See also Wyder v. Milhomme , 96 N.J.L. 500, 503 (E. & A. 1921); Trenton Potteries Co. v. Oliphant , 58 N.J. Eq. 507, 514-15 (E. & A. 1899); Chas. S. Wood & Co. v. Kane , 42 N.J. Super. 122, 124 (App. Div. 1956).

While the time limitation in the instant case -- one year -- is no doubt not unreasonable as a matter of law, the lack of any limitation upon the area in which Aiken is forbidden to work during that period is manifestly oppressive, for if enforced it would effectively preclude for an entire year his taking a job in the only field in which he has any special training. Plaintiffs concede, as they must, that this area provision is troublesome; they contend, however, that it should not be held unreasonable as a matter of law. Since plaintiffs do not allege that they do business in every State in this Union and in every foreign country in the world, we are hard put to imagine any set of circumstances under which so broad a restriction in the field of the manufacture and sale of foam products could be deemed reasonable.

Where the territory specified in a post-employment restraint is greater than that to which the business extends, the restriction is unenforceable. Creter ...


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