upheld a restriction of three years which prevented the former employee from selling to specific accounts located in the area of "Southern New Jersey, Eastern Pennsylvania and the State of Delaware." 471 Pa. at 11-13.
A synthesis of Bryant and Sidco would indicate that reasonable restrictive covenants are enforceable in Pennsylvania and that when a non-compete agreement intended for the protection of the employer is unreasonably overbroad, such a restriction can be modified by an equity court in an effort to make it reasonable. These principles have been consistently applied by the Pennsylvania appellate courts.
In Bell Fuel Corp. v. Cattolico, 375 Pa. Super. 238, 251, 544 A.2d 450 (1988), the Court held "case law empowers Pennsylvania courts to grant partial enforcement of an overbroad covenant either by excising offensive portions of the covenant or by adding language... In other words, a court of equity may not only remove an offensive term, but may supply a new, limiting term and enforce the covenant as so modified." See also Thermo-Guard, Inc. v. Cochran, 408 Pa. Super. 54, 596 A.2d 188 (1991); Davis & Warde, Inc. v. Tripodi, 420 Pa. Super. 450, 616 A.2d 1384 (1992). In Plunkett Chemical Co. v. Reeve, 373 Pa. 513, 95 A.2d 925 (1953), although there was no geographical limit, the court found that, because the employee had a defined sales territory during his employment, the parties could be held to have actually intended to restrain his past employment activities only in the same territory.
The plaintiffs have not cited, nor has the court's own research revealed, any appellate authority in Pennsylvania which would suggest that the principles set forth in Sidco and Bryant are no longer authoritative. Plaintiffs have cited Martin Industrial Supply Corp. v. Riffert, 366 Pa. Super. 89, 530 A.2d 906 (1987), where a panel of the Pennsylvania Superior Court held that the trial court did not abuse its discretion in refusing to issue a preliminary injunction or to rewrite an overbroad covenant. That case, however, made no reference to the continued validity of the law in Pennsylvania which allows a court to blue pencil a covenant as set forth by the Supreme Court in Sidco. Since the only holding of the Riffert case was that the trial court did not abuse its discretion in refusing to rewrite the questioned agreement, it provides little guidance here. Similarly, Peripheral Dynamics Inc. v. Holdsworth, 254 Pa. Super. 310, 385 A.2d 1354 (1978) is not instructive. Holdsworth was decided by an equally divided panel of six Judges of the Superior Court which held that the trial court did not abuse its discretion in refusing to limit the scope of an otherwise unenforceable covenant. Plaintiffs have cited other Pennsylvania cases in support of the contention that blue penciling is not appropriate here, however, none of those cases undermine the holding in Sidco and involve inapposite factual situations. For example, in Bilec v. Auburn & Assoc. Pension Tr., 403 Pa. Super. 176, 588 A.2d 538 (1991), the employer sought to deprive its employees of the right to participate in a pension plan through the use of a restrictive non-competition covenant. The Superior Court held that there was no showing that the restrictions were necessary for the employee's protection and that it was unduly harsh for the employer to attempt to enforce the covenant as a means of divesting the employees from their pension benefits. Thus, the inclination of the Pennsylvania Appellate Courts to modify restrictive covenants in a manner reasonably necessary to protect the interests of the employer remains intact.
Based on the foregoing, it is clear that the overwhelming weight of authority in Pennsylvania supports the principle that a court sitting in equity may reform an unenforceable non-compete covenant in an employment contract.
An analysis of the relative equities of the parties is necessary in order to determine whether the court should utilize the "blue pencil" approach in this case. In undertaking this analysis, it is important to briefly review the factual backdrop in order to determine the original intentions and expectancies of the parties to the agreement.
When Conklin was employed by Medtronic in March, 1988, he signed an Employment Agreement that he knew temporarily restricted his future employment with competitors of Medtronic. He did not know which restriction applied to him, i.e., the one year limitation as to those in a Field Sales Capacity or the two year limitation as to all other employees. Unable to locate a copy of the Agreement, he inquired in November, 1994, as to the details of the limitation and was allegedly informed that if he left the company, he was only obligated to refrain from contacting the top fifteen revenue producing accounts in his district.
Upon resigning from Medtronic on March 17, 1995, Conklin represented in his letter of resignation that he would honor all "obligations to Medtronic regarding my valid non-compete ...". On March 31, 1995, Medtronic's assistant general counsel, Bruce A. Johnson, responded by letter in which he reminded Conklin that, under the Employment Agreement Conklin had "... agreed not to provide any service to any account located in your Medtronic territory in connection with any product competitive with a Medtronic product" and requested him to "stay out of your former Medtronic accounts".
In the meantime, on March 30, 1995, Conklin forwarded a letter to his former superior, Frank Carson, in which he acknowledged receipt that very day of a copy of his Employment Agreement but now stated, "I have been advised that the non-compete I received today is too broad both as to the length of time (2 years) and the geographic scope (any area where Medtronic markets or intends to market products)". Thus, it was evident that Conklin knew that there were restrictions on future employment with a competitor in the district in which he served and that he was prepared to honor that commitment when he resigned on March 17, 1995. His attitude obviously changed after receiving an opinion on the validity of the covenant and, in this action, he now seeks to be relieved completely from his commitment. At the same time, it is also apparent from Bruce Johnson's letter of March 31, 1995 that Medtronic's purpose in enforcing the covenant was not to deprive Conklin of a livelihood anywhere in the world, as Conklin now claims, but to protect its competitive position for a limited period for certain products with customers previously serviced by Conklin. While employed by Medtronic, Conklin was in a position where he could develop relationships of trust and confidence with Medtronic customers. His work placed him in operating rooms where he rendered advice to Medtronic's physician customers who were performing serious surgery. Given the significant relationship that must develop between employees such as Conklin and Medtronic's customers, it is reasonable that Medtronic be given an opportunity to re-establish such relationships when an employee leaves.
The court finds that the equities in this matter balance in favor of Medtronic, and assuming that the two year restriction applies to Conklin, the court will "blue pencil" the restriction contained therein to make it reasonable and enforceable.
The Court of Appeals for the Third Circuit reiterated the standard to be applied in deciding a motion for a preliminary injunction in Campbell Soup Co. v. Conagra, Inc., 977 F.2d 86 (3d Cir. 1992). The Court stated:
'In order to support a preliminary injunction, plaintiff must show both a likelihood of success on the merits and a probability of irreparable harm. Additionally, the district court should consider the effect of the issuance of a preliminary injunction on other interested persons and the public interest'.... Furthermore, a showing of irreparable harm is insufficient if the harm will occur only in the indefinite future. Rather, the moving party must make a 'clear showing of immediate irreparable harm.'
Id. at 91 (quoting Bradley v. Pittsburgh Bd. of Educ., 910 F.2d 1172, 1175 (3d Cir. 1990) and Hohe v. Casey, 868 F.2d 69, 72 (3d Cir. 1989). The foregoing analysis demonstrates a strong likelihood that Medtronic would prevail on the merits
The next consideration is whether Medtronic has shown a probability of immediate irreparable harm. Campbell Soup Co., supra. As previously discussed, Medtronic has an interest in preserving customer relationships, these interests were intended to be protected by the non-compete agreement. The evidence of record demonstrates that Conklin is currently acting on behalf of a competitor of Medtronic and pursuing business relationships with customers of Medtronic that he serviced while employed there. To the extent that the restrictive covenant is being violated, Medtronic is suffering irreparable harm by the potential loss of customers posed by Conklin's activities.
Lastly, the court must consider the effect that the injunction will have on other interested parties and the public interest. As discussed above, the equities in the case weigh in favor of Medtronic and against Conklin. The public interest is furthered by protecting legitimate business interests that are recognized under Pennsylvania law. The Court in Sidco stated that "an employer's right to protect, by a covenant not to compete, interest in customer goodwill acquired by an employee is well established in Pennsylvania." 465 Pa. at 591. Such covenants provide an employer with a breathing spell in which to regain customer goodwill after the loss of an employee. Accordingly, the public interest is well served by enforcement of such agreements.
The elements necessary for the issuance of a preliminary injunction having been established, the court will grant defendant's motion as to Conklin and restrain him from contacting or servicing any customers in connection with a Medtronic product on which he had worked during the last year of his employment.
Ronald L. Hillard was employed as a sales representative by Medtronic from May 1983 until March 17, 1995. While employed by Medtronic, Hillard sold cardiac pacemakers and related devices to physicians and hospitals. Currently at issue is a clause in a contract, entitled "MEDTRONIC SALES EMPLOYEE AGREEMENT" that Hillard entered into on May 23, 1983. The provision states, in part:
After termination of employment, Employee will not solicit sales of Competitive Products to Key Accounts located in any sales territory he/she covered or supervised for Medtronic during the last year of employment for a period of time equal to one-half the time he/she was responsible for that account (in either a sales or supervisory capacity) but not more that 270 days; provided, however, that if the Employee fails to give notice required by paragraph 7, this restriction shall be extended for an additional period of time equal to the ninety (90) day notice period less the actual notice period.
On March 17, 1995, Hillard resigned from his employment with Medtronic. He now "represent[s] and promote[s]" the products of co-plaintiffs Intermedics and CarboMedics. Hillard received a letter from Bruce A. Johnson, Assistant General Counsel to Medtronic (Johnson), dated March 31, 1995, which details the "key accounts" and "Competitive Products" that he must refrain from soliciting. Based on this letter, which identifies heart valves as an applicable competitive product, Hillard seeks to set aside his restrictive covenant as being overly broad and unenforceable as interpreted by Medtronic inasmuch as he did not sell heart valves during his last year of employment with Medtronic, a fact which Medtronic now concedes. Hillard maintains that he is fully complying with the terms of his agreement and is entitled to summary judgment. Medtronic resists by claiming that a real threat exists that Hillard will violate his non-competition agreement because, by calling on former customers ostensibly to sell heart valves, he will be in a position to promote the sale of pacemakers and defibrillators. In short, there is no evidence that Hillard is violating his agreement or that Medtronic is now interpreting it in a manner that renders it unenforceable. Thus, there is no need for the court to address this issue at this time. Accordingly, Hillard's motion for summary judgment will be denied.
William J. Nealon
United States District Judge
Date: July 21, 1995
NOW, this 21st day of July, 1995, for the reasons contained in the accompanying memorandum, the motions of plaintiffs Hillard and Conklin for summary judgment are denied.
William J. Nealon
United States District Judge
NOW, this 21st day of July, 1995, after consideration of the Motion for a Preliminary Injunction filed by defendant Medtronic, Inc., and the memorandums and affidavits filed in support of, and in opposition to, the Motion, it is hereby ORDERED that:
1. Richard W. Conklin and Intermedics, Inc., and all persons in active concert or participation with them, who receive actual notice of this Order through personal service or otherwise, are hereby enjoined until further order of this court from directly or indirectly rendering services for one (1) year from March 17, 1995, in connection with the sale of any pacemaker, defibrillator or related product, to any persons or entities with whom Conklin had contact in his last year of employment with Medtronic.
William J. Nealon
United States District Judge