On appeal from Superior Court of New Jersey, Law Division, Bergen County.
Morton I. Greenberg, J. H. Coleman and R. S. Cohen. The opinion of the court was delivered by Coleman, J.h., J.A.D.
This is an appeal by plaintiff A.T. Hudson & Co., Inc., a management consulting firm, from a judgment which nullified a post-employment restrictive covenant ancillary to an employment contract between defendant William E. Donovan and plaintiff. The trial judge held that the anti-competition clause in the employment contract violated the public policy of this State. We disagree and reverse.
Plaintiff corporation was formed in 1975 by James Conneen, Richard Cain and defendant William Donovan. Each owned one-third of the corporation. At the inception of the corporation the three principals agreed to have anti-competition clauses as part of their contracts of employment. The anti-competition clause in the employment contract provided:
5. For a period of two (2) years after you leave the employ of the Company, you will not directly or indirectly, for yourself or for any other Business Entity, solicit any business from, or render any services to:
(a) Any Business Entity which has been a Customer of the Company at any time or from time to time during the two (2) year period prior to the date of termination of your employment with the Company. . . .
As a management consulting firm, plaintiff was engaged primarily in reorganizing the management of its clients' businesses. Plaintiff would solicit customers and if retained it would determine the weaknesses in the client's organization and then work with managers to help the client improve the work product. This objective was undertaken primarily through on-the-job work with the managers of the client's business.
Soon after the formation of the plaintiff corporation, Cain started contacting Bank of America with the intention of soliciting its business. Cain made numerous telephone calls to different people at the bank, and it took him approximately 15 to 18 months to reach the right person, Tony Matthews, the head of the bank's Internal Methods Department. Following Cain's contact with Matthews, the bank engaged plaintiff to perform a productivity improvement program for its data center in San Francisco at a cost of $260,000. Plaintiff did additional work for the bank in California and in England.
Donovan ended his association with plaintiff on September 28, 1980. In early 1981 he formed a partnership with two others to develop and acquire oil and gas producing properties; at that time he was not doing any business as a management consultant. He did, however, form a corporation called William E. Donovan Associates, Inc., anticipating that he might start doing management consulting again.
Donovan Associates did not become active until about May 1981 when defendant hired Viola Swihart to begin making telephone calls to the Buffalo/Rochester, New York area to solicit business. Swihart was an experienced telemarketer and used the standard directories to find potential clients. Swihart, who worked from her California home, would contact defendant to tell him if she had made an appointment for him with an interested party. Defendant was living in both Bradford, Pennsylvania and Denver, Colorado at the time; he was not present when Swihart made her calls and had very little actual contact
with her. Except for those companies with which Swihart had made appointments, defendant did not ...