Illegality: Agreements Unenforceable on Grounds of Public Policy

Case: Data Management, Inc. v. Greene (1988, AK) [pp. 592-597]

Facts: Shortly after Ds termination from Data Management (P), Data filed suit
against them for breaching a non-compete agreement. The agreement said they for 5
years after termination, employee will not perform any other similar services for
any person or firm in the state of Alaska. The preliminary injunction was
granted, but trial court then granted summary judgment to Ds because the agreement
was too broad, and because the clause could not be narrowed down by deleting the
broad words, it was wholly unenforceable. P appealed.

Issue: Was the trial court correct in making the whole covenant unenforceable
because it was too broad, or should another approach be used?

Holding: The court remands the case for more information about the plaintiffs’
good faith and whether the contract could be altered to make the covenant
reasonable.

Reasoning: Court looked at 3 approaches to dealing with overly broad covenants:

(1) Strict method: Where a clause is overbroad, and hence unconscionable, it
will not be enforced.
§ Court says they don’t like this approach b/c it is too harsh in that
any overly broad clause will be void automatically. They say parties should have
the freedom to bargain their own Ks.
§ This was the approach adopted by the trial court.
(2) Blue Pencil Method: Make the clause enforceable by striking out certain
words that make it unconscionable.
§ Court rejects this because all it changes are the words, and not the
substance of the clause.
§ Stupid rule b/c it values wording over its substance
(3) Rule of Reasonableness: “Reasonably” alter the covenant to make it
enforceable, in accordance with their intentions, if it is found to have been
written “in good faith”.
§ Why require good faith? - you don’t want employers writing a very
broad covenant, b/c they know a judge will narrow it down to reasonableness. So
if there is bad faith not enforceable; works as a deterrent from ppl acting in bad
faith
§ Court adopts this approach.
§ It is Employers burden to prove they acted in good faith.

Notes:
• In general, courts focus upon 2 aspects of the covenant:
○ Whether it protects some legitimate interest of the promisee,
○ Whether it is reasonable in scope
• Balance btwn rights of employer v. rights of employee
• Important here: How court's apply public policy
• Public Policy here:
○ On one hand, we don’t want unfair competition - like suing trade secrets,
etc
○ On the other hand, we don’t want ppl so limited they have to change
careers, or go w/o a job just b/c of the K