Clark Paper & Mfg. Co. v. Stenacher, 236 N.Y. 312 (1923)

An employee’s covenant not to compete will only be enforced if the employee’s services are special, unique, or extraordinary, or if they possess valuable trade secrets that could harm the employer’s business if disclosed.

Summary

Clark Paper sought to enforce a non-compete agreement against Stenacher, a former salesman, preventing him from working for a competitor for eight years. The court refused to enforce the agreement, finding that the employment contract lacked a definite term and that Stenacher’s services were not unique or special, nor did he possess any trade secrets. The court emphasized that simply preventing an employee from using general skills acquired during employment is an unreasonable restraint of trade.

Facts

Clark Paper & Mfg. Co. hired Stenacher as a salesman of wrapping paper. Stenacher signed an agreement stating that he would not work for a competitor in New York for eight years after leaving Clark Paper. The agreement also restricted him from revealing customer lists or the company’s business methods. Critically, the contract stated Stenacher’s employment term would be “mutually agreed upon between them,” but no such agreement on a specific term was ever reached. Stenacher left Clark Paper after approximately two and a half years to work for a competitor, the George Irish Paper Company. Clark Paper then sued to enforce the non-compete clause.

Procedural History

The trial court granted an injunction preventing Stenacher from working for Clark Paper’s competitor. The appellate division affirmed. The New York Court of Appeals reversed the lower courts’ decisions and dismissed the complaint.

Issue(s)

Whether a non-compete agreement is enforceable against a former employee when the employment contract lacks a definite term of employment and the employee’s services were not special, unique, or involved trade secrets.

Holding

No, because the underlying employment contract lacked a definite term, and the employee’s services were not unique or special, nor did he possess any trade secrets that could harm the employer’s business.

Court’s Reasoning

The Court of Appeals reasoned that the employment contract was incomplete because it failed to specify a definite term of employment. The agreement stated the employment period would be mutually agreed upon, but no such agreement was ever reached. This made the non-compete clause, which was tied to the expiration of the contract, unenforceable. Moreover, the court found that Stenacher’s services as a wrapping paper salesman were not special or unique. The court stated that “[t]here was nothing peculiar in the nature of the work undertaken for the plaintiff by the defendant.” The customers were easily identifiable through directories, and there were no secret customer lists. Critically, the court emphasized that the company’s true motivation was to prevent Stenacher from using the general skills he acquired during his employment elsewhere, which is an unreasonable restraint of trade. The court quoted Herbert Morris, Ltd., v. Saxelby, stating that an employer is “undoubtedly entitled to have his interest in his trade secrets protected…[b]ut freedom from all competition per se…he is not entitled to be protected against.” The court concluded that injunctions enforcing non-compete agreements are reserved for “exceptional cases where, by reason of the peculiar or extraordinary character of the services a violation of an agreement will cause injury to the employer for which an action at law will afford no adequate remedy.”