Labor Ready, Inc. v. Abis

DEBORAH S. EYLER, Judge. Labor Ready, Inc. and Labor Ready Northeast, Inc. (referred to collectively as “Labor Ready”), appellant, challenges an order of the Circuit Court for Baltimore City granting summary judgment in favor of Alan Abis, appellee, on Labor Ready’s claim for breach of a non-compete provision of an employment contract between the parties. Labor Ready presents the following questions for review, which we have rephrased: I. Did the circuit court err in concluding that Abis’s conduct in soliciting potential customers was not a ¹²¹ violation of the territorial restriction set forth in the non-compete agreement?

II

Did the circuit court err in ruling that the non-compete agreement was unreasonable as a matter of law?

III

Did the circuit court err in granting summary judgment in favor of Abis even though he admitted violating the territorial restriction set forth in the non-compete agreement? FACTS AND PROCEEDINGS Labor Ready is a national firm engaged in the business of providing temporary workers to the construction, landscaping, warehousing, and light industrial markets. In April 1998, Labor Ready hired Abis to work as the branch manager of its office at 3803 Annapolis Road, in Baltimore City. On March 18, 1998, before the start of his employment, Abis signed an “At Will Employment Contract” (“employment contract”) with Labor Ready.

The employment contract contained a non-compete provision that reads: It is understood and agreed that the nature of the methods employed in [Labor Ready’s] business is such that [Abis] will be placed in a close business and personal relationship with the customers of [Labor Ready], Thus, during the term of this Employment Contract and for a period of one (1) year immediately following the termination of [Abis’s] employment, for any cause whatsoever, so long as [Labor Ready] continues to carry on the same business, [Abis] shall not, for any reason whatsoever, directly or indirectly, for [himself] or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation or business entity: (a) Call upon, divert, influence or solicit or attempt to call, divert, influence or solicit any customer or customers of [Labor Ready]; (b) Divulge the names and addresses or any information concerning any customer of [Labor Ready]; ¹²² (c) Own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of the same, similar, or related line of business as that carried on now by [Labor Ready] within a radius of ten (10) miles from [Labor Ready’s] office at which [Abis] was last employed; and (d) Make any public statement or announcement, or permit anyone else to make any public statement or announcement that Employee was formerly employed by or connected with [Labor Ready]. The time period covered by the covenants contained herein shall not include any period(s) of violation of any covenant or any period(s) of time required for litigation to enforce any covenant. If the provisions set forth are determined to be too broad to be enforceable at law, then the area and/or length of time shall be reduced to such area and time and that shall be enforceable. Labor Ready discharged Abis in November, 1998.

In January, 1999, Abis was hired by Preferred Labor, one of Labor Ready’s competitors in the temporary employment labor business. Abis was assigned to work at Preferred Labor’s Suit-land office, in Prince George’s County, which is more than ten miles from the Annapolis Road office of Labor Ready. On February 19, 1999, Preferred Labor transferred Abis to an office it was about to open on Reisterstown Road, in Baltimore City. That office is located within ten miles of Labor Ready’s Annapolis Road office.

Abis worked at the Reisterstown Road office of Preferred Labor for seventeen days. Before that office opened for business, he was transferred back to Preferred Labor’s Suitland office. On March 30, 1999, Abis became the branch manager of Preferred Labor’s Essex office, in Baltimore County. That office is more than ten miles from Labor Ready’s Annapolis Road office.

On April 12, 1999, Labor Ready filed a complaint against Abis in the Circuit Court for Baltimore City alleging breach of ¹²³ contract and seeking injunctive relief. Labor Ready alleged that Abis was violating the non-compete provision of the employment contract in that he was working for Preferred Labor at a location within ten miles of Labor Ready’s Annapolis Road office. It sought an order enjoining Abis from engaging in competition with Labor Ready through employment or involvement with Preferred Labor in violation of the employment contract. The request for injunctive relief was taken before a master who stated, after holding a hearing, that she would recommend to the court that the injunctive relief be denied.

At that point, Labor Ready withdrew its request for injunctive relief. On July 2, 1999, Labor Ready filed an amended complaint, realleging the facts in support of its contract claim as set forth in its original complaint. 1 Thereafter, discovery, including the deposition of Abis, ensued. In addition to the facts that we have recited, the facts adduced in discovery established that Abis had not solicited any customers of Labor Ready within a ten-mile radius of its Annapolis Road office. Abis had solicited and serviced new customers within that area and had hired workers who, while never having been associated with Labor Ready, nevertheless were located within the ten-mile radius.

Abis filed a motion for summary judgment. Labor Ready filed an opposition and cross-motion for summary judgment. In support of his motion, Abis argued that the language of the non-compete provision of the employment contract did not prohibit him from doing business with customers who had never been associated with Labor Ready, but were located within a ten-mile radius of Labor Ready’s Annapolis Road office. He argued, in the alternative, that if the non-compete provision could be interpreted to prohibit him from doing so, it was unenforceable as overly broad and against public policy.

In its cross-motion for summary judgment, Labor Ready ¹²⁴ argued that Abis had conceded that for seventeen days he had violated the non-compete provision; it further argued that Abis’s solicitation of customers within ten miles of the Annapolis Road office constituted “operating” within the ten-mile radius. The circuit court held a hearing on the motions and gave its ruling from the bench. The court ruled that with respect to the seventeen-day violation, no damages could be shown to have resulted from that technical breach. The court further ruled that the plain language of the non-compete provision did not prohibit Abis from working outside the ten-mile radius but dealing with new customers those who never had been customers of Labor Ready) inside that radius.

Finally, the court ruled that if the language of the non-compete provision could be interpreted to mean that Abis could not deal with new customers within a radius of ten miles of Labor Ready’s Annapolis Road office, even though he was working at an office outside of the ten-mile radius, the provision would be unenforceable as against public policy. The court granted Abis’s motion for summary judgment and denied Labor Ready’s cross motion for summary judgment. It reserved, however, on the issue of whether Labor Ready was entitled to recover attorney’s fees under the employment contract. On February 14, 2000, the circuit court issued a written order memorializing its rulings.

Thereafter, on March 1, 2000, by stipulation and order of the court, Labor Ready’s claim for attorney’s fees was dismissed without prejudice. Labor Ready then noted a timely appeal. Additional facts will be recited as pertinent to our discussion of the issues. STANDARD OF REVIEW Maryland Rule 2-501(e), which governs motions for summary judgment, provides: “The court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is ¹²⁵ entered is entitled to judgment as a matter of law.” In relying on a motion for summary judgment, the trial court must view the facts and all reasonable inferences from those facts in the light most favorable to the nonmoving party.

Brown v. Wheeler, 109 Md.App. 710, 717 , 675 A.2d 1032 (1996). Yet, the nonmoving party may not rely on bare allegations or “ ‘a mere scintilla’ ” of evidence to defeat a motion for summary judgment. Helman v. Kim, 130 Md.App. 181, 193 , 745 A.2d 451 (2000) (quoting Barber v. Eastern Karting Co., 108 Md.App. 659, 672 , 673 A.2d 744 (1996) (citing Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 738 , 625 A.2d 1005 (1993))). “ ‘Thus, when a movant has carried its burden, the party opposing summary judgment “must do more than simply show there is some metaphysical doubt as to the material facts.” ’ ” Nerenberg v. RICA of Southern Md., 131 Md.App. 646, 660 , 750 A.2d 655 (2000) (quoting Beatty, 330 Md. at 738 , 625 A.2d 1005 (quoting Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 586 , 106 S.Ct. 1348 , 89 L.Ed.2d 538 (1986))). In reviewing a trial court’s grant of a motion for summary judgment, we engage in much the same analysis. If the trial court properly determined that no genuine dispute of material fact existed and the moving party was entitled to judgment as a matter of law, we then determine whether its ruling was legally correct. Lynx, Inc. v. Ordnance Prods.

Inc., 273 Md. 1, 8 , 327 A.2d 502 (1974). In so doing, we review the material from the record and decide the same legal issues as the circuit court. Nationwide Mut. Ins.

Co. v. Scherr, 101 Md.App. 690, 695 , 647 A.2d 1297 (1994). DISCUSSION I & II. Because the first two issues are intertwined, we shall discuss them together. Labor Ready contends that the circuit court erred by granting summary judgment in favor of Abis because the undisputed facts established that Abis’s conduct at Preferred ¹²⁶ Labor’s Essex office -violated the non-compete clause.

Specifically, Labor Ready argues that although the Essex office of Preferred Labor was more than ten miles from Labor Ready’s Annapolis Road office, Abis nevertheless had dealings with new customers within the ten-mile radius, and that by doing so, he was “operating in the same line of business” as Labor Ready, in violation of paragraph 15(c) of the employment contract. Labor Ready further contends that its interpretation of the non-compete clause does not violate public policy because the clause was narrowly drawn to protect its trade secrets and customer base. Abis responds that he was “operating” in the temporary labor business in Essex, outside of the ten-mile radius, and therefore did not violate the non-compete clause. In the alternative, Abis asserts that Labor Ready’s interpretation of the non-compete clause is too broad to serve the business’s legitimate interests and, therefore, violates public policy.

Both parties acknowledge that there is no evidence that Abis was soliciting customers of Labor Ready. The customers with whom Abis was dealing inside the ten-mile radius were new customers who were not associated with Labor Ready, but whom Labor Ready considered part of its potential customer base. Paragraph 15(c) of the employment contract prohibited Abis from directly or indirectly “operating]” the same line of business as Labor Ready “within a radius of ten (10) miles” of Labor Ready’s Annapolis Road office. The parties agree that the outcome of this case hinges upon the meaning of the word “operate” in the non-compete clause.

Although the parties disagree about the proper interpretation of that word, they each take the position that the language of the non-compete clause is unambiguous and its meaning is a question of law. (i) Ordinarily, we will interpret a contract under the laws of the state in which it was formed. The contracting parties may provide otherwise in the contract, however, “un ¹²⁷ less there is no reasonable basis for the choice, or the choice of law violates a fundamental policy of the State.” Lamb v. Northwestern Nat. Life Ins.

Co., 56 Md.App. 125, 128 , 467 A.2d 182 (1983) (citing Kronovet v. Lipchin, 288 Md. 30, 43 , 415 A.2d 1096 (1980)). In this case, the parties agreed, at paragraph 21 of the employment contract, that the contract would be “governed and construed in accordance with the laws of the State of Washington.” Accordingly, we shall apply the laws of Washington in interpreting this contract. We note that we do so with no assistance from the briefs submitted by either party, both of which state that Maryland law and Washington law are the same and proceed to cite and discuss only Maryland cases. After conducting our own research, we agree that Maryland law and Washington law are not substantively at variance.

Citations to Washington case law would have been helpful to us in reaching that conclusion, however. The touchstone of contract interpretation is the intent of the parties. Scott Galvanizing, Inc. v. Northwest EnviroServices, Inc., 120 Wash.2d 573 , 844 P.2d 428, 432 (1993) (citing Berg v. Hudesman, 115 Wash.2d 657 , 801 P.2d 222 (1990)); Bonneville Power Admin. v. Washington Pub. Power Supply Sys., 956 F.2d 1497 , 1505 (9th Cir.1992) (applying Washington law). “Determination of the intent of the contracting parties is to be accomplished by viewing the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties to the contract, and the reasonableness of the respective interpretations advocated by the parties.” Berg, 801 P.2d at 228 (quoting Stender v. Twin City Foods, Inc., 82 Wash.2d 250 , 510 P.2d 221 (1973)); see also Restatement (Second) of Contracts § 212 cmt. b (1981) (adding usages of trade and the course of dealing between the parties), quoted in Berg, 801 P.2d at 229 .

When a contractual clause is unambiguous, it is the function of the court objectively to ¹²⁸ interpret its meaning. Truck Center Corp. v. General Motors Corp., 67 Wash.App. 539 , 837 P.2d 631, 634 (1992) (citing Glesener v. Balholm, 50 Wash.App. 1 , 747 P.2d 475 (1987)). Words used in a contract must be given their plain and ordinary meaning, unless the contract indicates otherwise. Universal/Land Constr.

Co. v. City of Spokane, 49 Wash.App. 634 , 745 P.2d 53, 55 (1987) (citations omitted). A contract “must be read as the average person would read it; it should be given a ‘practical and reasonable rather than a literal interpretation.’ ” Eurick v. Pemco Ins. Co., 108 Wash.2d 338 , 738 P.2d 251, 252 (1987) (quoting E Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wash.2d 901 , 726 P.2d 439 (1986)). “If only one reasonable meaning can be ascribed to the agreement when viewed in context, that meaning necessarily reflects the parties’ intent.” Martinez v. Miller Indus., 94 Wash.App. 935 , 974 P.2d 1261, 1266 (1999) (quoting Interstate Prod.

Credit Assoc. v. MacHugh, 90 Wash.App. 650 , 953 P.2d 812 (1998)). Courts will enforce non-compete clauses so long as their terms are reasonable in light of the interests of the employer, the employee, and the general public. E.g., Perry v. Moran, 109 Wash.2d 691 , 748 P.2d 224, 228 (1987) (quoting Knight, Vale & Gregory v. McDaniel, 37 Wash.App. 366 , 680 P.2d 448 (1984)). By their nature, non-compete clauses violate the public policy against contracts in restraint of trade.

Wood v. May, 73 Wash.2d 307 , 438 P.2d 587, 589 (1968) (quoting Racine v. Bender, 141 Wash. 606 , 252 P. 115 (1927)). Therefore, non-compete clauses “should be no greater in scope than is necessary to protect the business or goodwill of the employer.” Knight, Vale & Gregory, 680 P.2d at 448 , 452 (citing Wood v. May, 73 Wash.2d 307 , 438 P.2d 587 ; Central Credit Collection Control Corp. v. Grayson, 7 Wash.App. 56 , 499 P.2d 57 (1972)). Whether a covenant is reasonable involves a consideration of three factors: (1) whether restraint is necessary for the protection of the business or goodwill of the employer, (2) whether it imposes upon the employee any greater restraint ¹²⁹ than is reasonably necessary to secure the employer’s business or goodwill, and (3) whether the degree of injury to the public is such loss of the service and skill of the employee as to warrant nonenforcement of the covenant. Id.

(citations omitted). This consideration is a question of law to be determined by the court. Id. at 451 (citing Marquez v. UW, 32 Wash.App. 302 , 648 P.2d 94 (1982); Alexander & Alexander, Inc. v. Wohlman, 19 Wash.App. 670 , 578 P.2d 530 (1978)). To recover for a breach of a non-compete clause, the plaintiff must prove that the provision imposed a duty, that the duty was breached, and that the breach was the proximate cause of the claimed damages.

See Northwest Indep. Forest Mfgs. v. Department of Labor & Indus.,