Neb.: Scope of Noncompete Agreement Greater than Reasonably Necessary

By Rosemarie Lally Dec 16, 2014

A noncompete agreement directed toward preventing former employees from using funds earned to establish competing businesses was broader than reasonably necessary to protect against unfair competition, the Nebraska Supreme Court determined.

Jason Gaver, who was employed by Schneider’s O.K. Tire Co., signed a noncompete agreement as a condition of participating in the company’s profit-sharing plan. The noncompete agreement generally stated that Gaver could not establish or open any business similar to Schneider’s or “in any manner become interested, directly or indirectly, either as an owner, partner, agent, stockholder, officer or otherwise, in any such business or trade” within a 25-mile radius of Columbus for a period of five years after the termination of Gaver’s employment. Gaver received all the profit- sharing money he was due.

After leaving his employment with Schneider’s, Gaver filed a complaint seeking a declaratory judgment that the noncompete agreement was unenforceable. The district court, finding that the noncompete agreement was unreasonable and unenforceable because its scope was greater than reasonably necessary to protect the employer against unfair competition, entered judgment for Gaver.

On appeal, the Nebraska Supreme Court affirmed, holding that the agreement was greater than reasonably necessary to protect the employer’s legitimate interests. The court identified a number of legitimate protectable business interests, including an employer’s goodwill, confidential information, and trade secrets, but said that an employer does not ordinarily have a legitimate business interest in the postemployment preclusion of an employee’s use of some general skill.

The court noted that Schneider’s had not demonstrated any special circumstances affecting a legitimate business interest to be protected by the noncompete agreement. There was no evidence that Gaver had any business-based contact with Schneider’s customers or prospective customers, that he had any confidential information regarding customers, or that he had acquired any trade secrets regarding automotive repairs and sales. Further, there was no evidence that the on-the-job training and knowledge acquired by Gaver was any different from what he would have received from another employer engaged in the business of automotive repairs and sales.

“The noncompete agreement does not protect a legitimate business interest of Schneider’s, such as its goodwill, confidential information, or trade secrets, but, rather, it seeks to prevent competition in general by restricting the manner in which Gaver applies funds he has already earned and received,” the court found. “The anti-ownership restrictive language in the noncompete agreement directed to the use of funds already earned and received is not directed at a protectable legitimate business interest, and it is greater than reasonably necessary to protect the recognized interests of the employer.”

Gaver v. Schneider’s O.K. Tire Co., Neb., No. S-13-1014 (Nov. 14, 2014).

Rosemarie Lally, J.D., is a freelance legal writer and editor based in Washington, D.C.


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