Deuerling v. City Baking Co.

Digges, J., delivered the opinion of the Court. The question presented on this appeal arises out of a contract of employment entered into between the appellant, as employee, and the appellee, as employer. The appellee is a bakery company, now and for a long time engaged in that general business in Baltimore City, and draws business from routes extending from Baltimore City into its suburbs and elsewhere, and particularly from the territory in the neighborhood of Hickory, Dublin, Castleton, Darlington, Stafford, Conowingo, and Belair, this particular territory being a subdivision prepared for convenience by the appellee and constituting one of its sales routes. A large portion of the appellee’s general business is conducted by drivers or salesmen assigned to particular routes and supplied with a list of customers or prospective customers in the assigned territory.

The appellant had been an employee of the appellee since 1916 as one of its driver-salesmen, and had assigned to him and traded with the customers in the territory above stated. The contract between the parties was entered into on September 27th, 1927, and, after setting forth in its preamble the business of the company and how it is conducted, provided that the employee should receive as compensation for his services and for the full compliance with the terms, conditions, ²⁸² and covenants of -the agreement recited, eight per cent, of the sales made by him, that the commissions above recited should be in full payment for services rendered under the 'contract, and compensation in advance for not soliciting or selling products, similar to those sold or offered for sale by the company, in ány territory covered by the employee for the company during the last six months of his employment, for three months after the representative, shall1 have left the employ of his company, of his own accord or at the demand ■of the company. The contract further provides that the employment thereunder should begin on the 27th day of September, 1927, and continue in force from week to week thereafter, until it is terminated by the act of either party, but such termination is not to release the employee from the terms of the agreement yet to be performed by the employee at the time of the termination of the service. It'further provides that the employee agrees, by reason of his financial circumstances, the difficulty of proof of damages, the compensation to be received thereunder, and other recitals- therein first contained, that in event of .any breach of the terms •or conditions of this agreement on his part to be performed, a decree may be passed by any equity court in which a suit is brought for such purpose, enjoining him, from violating, the restrictive covenants.

The bill of complaint alleges that on the 15th day of December, 1927, the appellant left the service of the appellee, and entered into the employ of the Schmidt Baking Company, Inc., on or about December 19th, 1927, and as such employee he is now trading with the customers of the appellee in the territory particularly described in the original contract of employment. Bpon this bill a preliminary injunction was issued restraining the breach of the restrictive covenant contained in the contract. A demurrer was filed to the bill, and an appeal taken from the order granting the preliminary injunction. We are called upon, therefore, to determine the single question of whether or not the action of the chancellor in granting the preliminary injunction was correct.

The injunction -restrained the appellant, his agents, servants, and ²⁸³ employees, they and each of them, from calling upon, soliciting, trading with, or attempting to trade with, either directly or indirectly, any person, persons, company, or corporation, who were the customers of the appellee in the territory set out in the hill of complaint and particularly described in the contract, for a period of ninety days from December 15th, 1927. The time for which the injunction was granted will have expired before the decision in this court, and, in that aspect of the case, in so far as the decision here could give injunctive relief, it could he of no benefit to either party. Upon the decision, however, does rest the question of who is liable for the costs of the appeal, and in addition, it is to he hoped that what we may hei*e say will he of benefit in settling questions arising under a similar state of facts. This case is an illustration of a very numerous class of decisions which courts are asked to make, which depend in large measure upon the particular facts and circumstances of each case, and for this reason, if it were possible, in onr judgment it would be; unwise, to promulgate or declare unchangeable rules to govern all cases.

Even though this be time, it is essential to keep in mind tbe general principles to be applied to the varying facts in each case. We have here a contract the terms of which are explicit and unambiguous, solemnly executed by the parties thereto', fully competent to make such a contract. It is a contract of hiring, hy which the employee agrees to perform definite, stipulated services in consideration of receiving stated compensation. By its terms it is to continue from week to week, and may be terminated hy the act of cither party.

It provides that, in the event of its termination hy either party, the employee agrees not to directly or indirectly for the period of three months after such termination solicit, sell, or attempt to sell or deliver any bakery products to any one located on the route assigned to him at any time during his last six months employment. The purposes of the contract are equally clear and definite as its terms, and are, to provide employment for the appellant, his services ²⁸⁴ for the appellee, and, at the termination of his service, to fix a period of three months, which said time the appellee is to have, to familiarize an employee substituted for the appellant with the customers along the route or routes served by the appellant during the last six months of his employment. Restrictive covenants in contracts of employment, affecting the right of the employee to' accept employment with-others or engage in business for himself, may be divided into two classes, first, one not to accept employment with others during the term of the contract, and second, not to engage in a similar business or accept employment with others for a similar purpose for a definite period of time after the termination of the contract. Each of these classes of covenants, whether they be against similar employment during the term of the contract, or against engaging in business for one’s self or in similar employment for another for a definite time after the termination of the contract, is in a degree in restraint of trade, for it is undeniable that the right to labor or use one’s skill, talents, or experience for one’s own benefit, or furnish them to- another for compensation, is a natural and inherent right of the individual, and is often expressed by the term “freedom of trade.” In the exercise of such a right the employee has an interest, as also the general public, who are entitled to have the energy, industry, skill, and talents of all individuals freely offered upon the market, and it can be easily imagined that by unreasonable curtailment, through restrictive covenants contained in contracts of employment, the public at large might thereby 'be deprived of the service of individuals so essential to the progress, welfare^ 'and happiness of mankind.

It has long been recognized by courts and economists that it is just as essential that men’s services be freely for sale, as that property should not be allowed to be withdrawn from the market for an indefinite length of time. Both of these principles are based upon a sound public policy. Opposed to the unlimited application of this principle of freedom of trade is the equally well recognized principle of. ²⁸⁵ freedom of contract, which, in its essence is also natural and inherent in the individual, and which in innumerable cases tbe courts have recognized and enforced. And here, again, the public has a real and vital interest, because if, recognizing tbe right to contract, one who does contract can, without loss or penalty, disregard his obligation, there would he brought about such a chaotic condition in the business, industrial, and financial world as to result in practical stagnation.

It therefore seems clear, in considering the question now presented, that the rights and interests of the employer, the employee, and the public at large must be considered. It was early recognized that a decree of specific performance against an employee under an ordinary contract of employment might result in a species of industrial servitude, which the courts would not require to be performed; and following this line of reasoning, they held, in cases in which specific performance would not be decreed, that injunctive relief in aid of specific performance would not bg given. Later this rule1 was modified to the extent of holding that, in cases where the employment necessitated that the employee have a special individual qualification, or the service was of an unusual and unique character, and the contract for such service contained a restrictive covenant, the breach of such a covenant would he enjoined. In the contract before us there is no1 restrictive covenant applicable to the term of the employment, but here it comes into force after the termination of the employment, and prohibits the employee from engaging in the same business over the same route, for himself or another, for a definite period after the termination of the employment.

The objects to be attained by such a covenant, effective during tbe term of the employment, amd one only to take effect at the termination of the employment, are essentially different. In the first instance, the primary purpose of the restrictive covenant is to enforce service by the employee to his employer during the term of the contract, while, in the second, the purpose is to prevent unfair competition by the employee or his subsequent employer, through the employee engaging iu the business of ²⁸⁶ the first employer, for. a limited time in a definite and restricted areá. The last mentioned purpose is that sought by the restrictive covenant in the contract before us, and is more analogous to contracts of sale including good will, than it is to contracts of employment containing restrictive covenants the purpose of which is to enforce service during the term of the contract. It has been held that, upon principle, agreements imposing restraints upon the right of an employee to engage in a competing business after the termination of the contract of' service are to be determined by the same test as that applicable to agreements ancillary to the sale of a business.

In the case of Eureka Laundry Co. v. Long, 116 Wis. 205 , the. court, in dealing with this question, said: “The question arises, Hoes it make any substantial difference whether the thing of value bargained for is contained in a contract of sale, or in a contract of hiring ? If it is lawful and proper to protect a business just about to be acquired from certain acts by the seller, who is familiar with such business, why is it not equally lawful and proper to1 protect an established' business from such acts by one who has become familiar therewith? We perceive no’ difference in principle. The purchaser says to the seller: ‘You are familiar with this business.

You know your customers. Your personal acquaintance with them is such that you could, divert their trade from me if you saw fit. How, I will purchase your business upon the express condition that you will agree for a limited length of time not to engage in a like business in this locality; at the expiration of that time I shall know my business and my customers well enough to1 be able to protect myself.’ So the owner of an established business says to a prospective employee: ‘In the employment, you will become familiar with the customers of my business in a way that I cannot; you will meet them frequently, while I see them rarely, if ever. How, I will hire you upon the express condition that you will agree for a limited length of time not to solicit trade from such of my customers as you may have supplied while in my employ, and will not engage in my business ²⁸⁷ with in a limited time in the territory yon have oeeupied.

At the end of that time my new employees will be sufficiently well acquainted with my customers, to protect my business.’ Why is not one contract as valid as the other? Both are based upon valuable considerations. If it be said that the latter contract tends unreasonably to hamper employees in their quest for employment, the answer is: Whatever is reasonably necessary for tbe protection of a legitimate business promotes the best interests of the employees of that business.” 13 C. J. 485. In the recent ease of Burnham v. Burnham, 153 Md. 147 , and the second appeal thereof ( 154 Md. 349 ), which was a receiver’s sale of a, business for the manufacture and sale of ice, including the good will thereof, wé held that ■a partner in the former business should be restrained from soliciting the customers of the copartnership', and this for the reason that the sale of the good will carries with it, as a valuable part thereof, an implied restriction against a former partner soliciting, after-the sale, customers of the old partnership.

In our opinion, there is no valid distinction between a •court of equity enforcing by injunction this restrictive implication, and enforcing the specific restrictive covenants contained in the contract in this case. The parties to this contract agreed to the restrictive covenant, and, if its terms are fair and reasonable, a court of equity should enforce its provisions by granting injunctive relief. The question of whether it