Richard F. Stevens, Theodore J. Zeller, Jr., Butz, Hudders & Tallman, Allentown, for appellant.
Donald H. Lipson, Walker, Thomas, Karess, Lipson & Zieger, Allentown, for appellee.
Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Roberts, J., filed a concurring opinion in which Jones, C. J., joins. Eagen, O'Brien and Manderino, JJ., concur in the result.
Appellee, George W. Kistler, Inc., commenced this action in equity seeking to enforce a restrictive covenant in a written employment contract between itself and its employee, appellant William J. O'Brien. On May 14, 1974, the Court of Common Pleas issued a Decree Nisi enjoining appellant from engaging in selling or servicing fire equipment within a 50 mile radius. Appellant's exceptions were dismissed by the court en banc and a Final Decree granting relief was entered. This appeal followed.
Appellant seeks to vacate the ruling of the court below on several grounds. One of his contentions is that the
covenant restricting appellant from engaging in a competitive business was not supported by adequate consideration. We agree with this argument and therefore reverse. Accordingly, we need not address appellant's other contentions.*fn1
A review of the record reveals the following pertinent facts. Appellee, George W. Kistler, Inc., (Kistler) is a Pennsylvania corporation engaged in the sale and service of fire equipment and fire prevention services.*fn2 About a year prior to May of 1970, appellant, William J. O'Brien (O'Brien) was contacted by representatives of Kistler with respect to O'Brien's possible employment with their company. No decision was made at that time and the matter was left open for further discussion. Subsequently, some time in the late Winter or early Spring of 1970, Kistler again solicited O'Brien and after various negotiations relating to wages, duties, insurance benefits and other terms of employment but not including any mention of a restrictive covenant, it was agreed that O'Brien would leave his present employer and work for Kistler. O'Brien gave his then employer two weeks notice and began to work for Kistler on May 11, 1970.
On or about that same day, O'Brien questioned one of the clerks at the business with regard to his insurance benefits. Upon doing so, he was handed various forms to complete and sign, among them a document entitled Employment Contract which contained the following clause:
"In consideration of the said OWNER granting such requested employment to the said EMPLOYEE and in
further consideration of the payment of ONE ($1.00) DOLLAR lawful money of the United States, this day made by the OWNER to the EMPLOYEE, he, the EMPLOYEE, agrees with the OWNER that for a period of two (2) years after said employment is terminated for any cause whatsoever by either or both of the parties, that he will not directly or indirectly manufacture, sell, distribute, handle on his own account or by association or employment by or with any other persons whomsoever within an area of fifty (50) miles, extending from the City of Allentown, Lehigh County, Pennsylvania, any product equal in character or in any way similar to the products handled, bought, sold or serviced or to be handled, bought, sold or serviced by said OWNER."
O'Brien worked at various times in the capacity of Service Manager and Branch Manager for Kistler until November 16, 1973, when he was discharged for reasons that are disputed.
Upon his departure from Kistler, O'Brien went into business for himself servicing hand portable fire extinguishers. He solicited business from concerns located in large buildings and also did service work by subcontract for distributors of hand portable fire extinguishers. This activity was to some extent in competition with the activities of his former employer.
It is axiomatic in our law that in order for a covenant in restraint of trade to be enforceable the covenant must 1) relate to (be ancillary to) a contract for the sale of the good will of a business or to a contract of employment, 2) be supported by adequate consideration, and 3) be reasonably limited in both time and territory. Jacobson & Company v. International Environment Corporation, 427 Pa. 439, 235 A.2d 612 (1967); Capital Bakers, Inc. v. Townsend, 426 Pa. 188, 231 A.2d 292 (1967); Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 206 A.2d
(1965); Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957).
Appellant asserts that the covenant is unenforceable because it lacks consideration. It is his position that the negotiations prior to May 11th constituted a complete and binding oral contract for which the consideration was the employment itself. Thus he argues that the employment as consideration was not available to support the subsequent written restrictive covenant. Moreover, he contends that the entering into an agreement containing a restrictive covenant was not a factor considered in arriving at the oral agreement of employment. It was not until O'Brien had commenced work and inquired about his Blue Cross benefit forms that he was requested by a clerk to sign the "Employment Contract" supposedly in accordance with the general practice of the firm. It is particularly significant that Kistler, who was then operating a sole proprietorship and personally participated in the final negotiations, never discussed this requirement.
Thus we must first determine at what point a final and binding employment contract was executed before determining what, if any, consideration ...