holding a covenant not to compete is valid if it is... reasonable as to time and territory...Summary of this case from Eli Research, LLC v. Must Have Info Inc.
Filed 31 May 1983
1. Appeal and Error 6.2 — denial of preliminary injunction — immediate appeal The denial of plaintiff's motion for a preliminary injunction to restrain defendant from breaching a covenant not to compete deprived plaintiff of a substantial right and was immediately appealable. G.S. 1-277; G.S. 7A-27.
2. Courts 21.8; Contracts 7.1 — covenants not to compete — applicable law — validity Covenants not to compete in employment agreements were governed by the substantive law of New Jersey where the agreements contained a provision that they would be "governed by the laws of the State of New Jersey," and the covenants in question appear to be valid and enforceable under New Jersey law where they are in writing, are reasonable as to time and territory, were made a part of the contracts of employment, were based on reasonable consideration, and are designed to protect a legitimate business interest of plaintiff employer.
3. Injunctions 13.1 — preliminary injunction — protection of plaintiff's rights In determining whether a preliminary injunction should issue, the trial court's second inquiry is not limited to the question of irreparable injury. Rather, the injunction will issue if, in the opinion of the court, issuance is necessary for the protection of a plaintiffs rights during the course of litigation.
4. Injunctions 6; Contracts 7.1; Master and Servant 11.1 — restraining breach of covenant not to compete — right to preliminary injunction The trial court should have allowed plaintiffs motion for a preliminary injunction to restrain defendant from breaching a covenant not to compete in an employment agreement where there was a reasonable likelihood that the covenant was valid and that plaintiff would likely prevail on the merits; the ultimate relief plaintiff sought was a permanent injunction to enforce the covenant not to compete; the decision made at the preliminary injunction stage of the proceedings became, in effect, a determination on the merits because of the brief duration of the time limitation of the covenant; plaintiffs principal relief was necessarily equitable in nature; and the denial of a preliminary injunction would serve effectively to foreclose adequate relief to plaintiff.
5. Injunctions 13 — right to preliminary injunction Where the primary ultimate remedy sought is an injunction; where the denial of a preliminary injunction would serve effectively to foreclose adequate relief to plaintiff; where no "legal" (as opposed to equitable) remedy will suffice; and where the decision to grant or deny a preliminary injunction in effect results in a determination on the merits, plaintiff has made a showing that the issuance of a preliminary injunction is necessary for the protection of its rights during the course of litigation.
PLAINTIFF appeals from a decision of the Court of Appeals, 58 N.C. App. 155, 293 S.E.2d 232 (1982), affirming the denial of plaintiff's motion for a preliminary injunction entered by Snepp, J., by order filed 2 December 1981 in Superior Court, MECKLENBURG County. Plaintiff appeals the decision of the Court of Appeals pursuant to G.S. 7A-30 (2).
Bell, Seltzer, Park Gibson, by James D. Myers and Ronald T. Lindsay, for plaintiff-appellant.
Elam, Seaford, McGinnis Stroud, by Keith M. Stroud, for defendant-appellee.
Justice MARTIN dissenting.
Justices COPELAND and EXUM join in this dissenting opinion.
The sole issue before us is whether the Court of Appeals erred in affirming the Superior Court's denial of plaintiff's motion for a preliminary injunction to restrain the defendant from breaching a covenant not to compete in an employment agreement. For the reasons set forth below, we hold that the plaintiff satisfied its burden pursuant to G.S. 1-485 and is therefore entitled to the relief sought pending final determination on the merits.
The Record discloses the following facts:
Plaintiff is engaged in the manufacture and distribution of various polyethylene products throughout the United States. On 4 October 1976, the plaintiff hired the defendant as a sales representative to work out of plaintiff's North Carolina office. As a condition of this employment, and consistent with plaintiff's practice of protecting its confidential and proprietary information, defendant was required to execute a written agreement which provided, inter alia, that:
In consideration of a) your continued employment of me; b) your payment to me of a salesman's bonus which you are not obligated to pay; c) the further development of my skills and an anticipated increase in my earnings potential while employed by your firm, . . . .
. . . .
5. I hereby acknowledge that a) A.E.P. Industries, Inc. manufactures and processes products and sells them throughout the continental United States; b) A.E.P. Industries, Inc. salesmen employ personal mail and telephone solicitations extensively in the course of marketing products and developing new customers for A.E.P. Industries, Inc.; and c) the names of A.E.P. Industries, Inc.'s customers and prospects are not generally known in the trade. As a consequence of the confidential nature of the customer and prospect lists, and other product, prices, sales and financial information which has been and will be made available to me in my employment by your firm, I will not, during the term of my employment and for a period of 18 months thereafter (regardless of the reason for the termination of my employment).
A. Directly or indirectly, as a sole proprietor, or as a principal, partner, stockholder, director, officer, employee, agent or other representative, engage, participate or become interested in, affiliated or connected with, be employed by or render service to, any corporation, firm, association, or other enterprise which shall market or sell the same or substantially similar products as those marketed or sold by A.E.P. Industries, Inc. at the time of the termination of my employment or within the 6 month period immediately preceding such termination.
B. Solicit for orders, accept orders from or service any customer of A.E.P. Industries, Inc. whom or which I contact personally, by mail or by telegraph, or serviced while employed by A.E.P. Industries, Inc.
C. Solicit for orders, accept orders from, or service any person, firm or other enterprise whom or which was a customer of A.E.P. Industries, Inc. during the term of my employment, whether or not such customer was personally solicited or serviced by me.
D. Solicit for orders, accept orders from, or service any prospects of A.E.P. Industries, Inc. whom or which I contacted personally, or whose names I learned of, during the term of my employment of A.E.P. Industries, Inc.
E. Disclose to any individual, firm, association, corporation or other enterprise, nor use for my own benefit, any business, trade, financial, customer, product or sales information which shall become known to me in the course of my employment by A.E.P. Industries, Inc. such information being deemed confidential to the extent not known generally in the trade.
F. I acknowledge that the remedies at law for the breach of any of the restrictive covenants contained in the immediately preceding paragraph shall be deemed to be inadequate and that A.E.P. Industries, Inc. shall be entitled to injunctive relief for any such breach.
After having worked for the plaintiff for approximately eight months, defendant was promoted to the position of sales manager. In this capacity defendant was responsible for the employment, training, and supervision of all of plaintiff's sales personnel in twelve southeastern states. Defendant had access to information concerning the manufacturing requirements of plaintiff's customers.
On 23 August 1979, defendant entered into a second written employment agreement with the plaintiff, the terms of which were substantially similar to the first agreement. The recited consideration in the 23 August agreement was $100.00. Furthermore, the second agreement expressly limited defendant's activities to "the area of the continental United States located east of the Mississippi River."
On 21 August 1981, plaintiff and defendant entered into an Agreement on Termination which provided, inter alia, that:
WHEREAS, A.E.P. is, in fact, engaged in the manufacture, production and distribution of various polyethylene plastic products throughout the United States, either directly or through one or more of its subsidiaries or affiliated companies; and
WHEREAS, the Employee has been employed for A.E.P. primarily in its plant location at Matthews, North Carolina for a significant period of time; and
WHEREAS, the employment by A.E.P. of the Employee will terminate as of the date hereof; and
WHEREAS, the Employee will be hired by an affiliated company, i.e., Design Poly Bag Corp., a New Jersey corporation; and
WHEREAS, the Employee acknowledges that in his capacity as an employee of A.E.P., he was necessarily provided with a great deal of confidential and proprietory information of A.E.P., including names and addresses of customers of A.E.P. and product needs and pricing for same as well as all the other type of confidential and proprietory information described in a certain agreement entered into between the Employee and A.E.P. at the inception of his employment by A.E.P.; and
WHEREAS, the Employee has previously agreed and received consideration for such agreement not to engage in certain activities for a period of time subsequent to the termination of his relationship with A.E.P.; and
WHEREAS, the parties wish to enter into an additional and further agreement to return for the consideration herein expressed and the hiring by Design Poly Bag Corp. (an affiliated corporation with A.E.P.) of the Employee.
NOW, THEREFORE, the parties hereto do acknowledge, understand and agree as follows:
1. The Employee acknowledges previous employment by A.E.P. and his receipt and acquisition as Employee of vital, confidential and proprietory information from A.E.P. as described in the Agreement between the Employee and A.E.P. which commenced at the beginning of his employment. The Employee reacknowledges the receipt of good and valuable consideration for said earlier Agreement and reacknowledges and reaffirms the efficacy and continuing viability of same.
2. In consideration of the receipt of $20,000.00 in hand to be paid to the Employee by A.E.P. over such period of time as the parties may agree, or in consideration of the receipt of any portion of same, the Employee, Bruce McClure, agrees that he will not at any time hereafter use or disclose any proprietory information of A.E.P. which has been acquired by him directly and solely as a result of his previous employment by A.E.P. The Employee agrees that customer lists and prospective lists of customers together with addresses of same, products acquired by same, price information on customers and sales and financial information of A.E.P. and all items of confidential and proprietory information are included within this Agreement. Not by way of limitation, but by way of example, attached hereto is a list of customers of A.E.P. Industries, Inc. whose names have been disclosed to Employee. Except for the business of Design Poly Bag Corp. (an affiliated corporation of A.E.P.) the Employee will not, under any circumstances, contact or communicate with any representative, officer, principal, agent or employee of the customers of A.E.P. whose names have been made known to the Employee and some of those names are set forth on the attached list.
3. The Employee reaffirms and reacknowledges all of the representations and acknowledgements previously set forth in an earlier agreement between A.E.P. and the Employee.
This third agreement included a covenant not to compete similar to that in the two earlier agreements, the geographic limitation encompassing areas "within a radius of 300 miles of the location at which any of A.E.P.'s offices, regional or otherwise, may be located."
With respect to defendant's subsequent employment with Design Poly Bag Corp., the Record includes a memo indicating that defendant was to receive compensation as follows:
Subject: Compensation Agreement
I. 1st year commencing 8/21/81 for 52 wks. Compensation — $42,500 total
A) A.E.P. — $20,000 to be paid in 52 equal installments in consideration for the attached contract — no payroll deduction.
B) Design — $22,500 draw to be paid weekly for the 1st yr. — no payroll deduction.
Other compensation 1st yr. only:
C) A.E.P. to provide the continued use of company car.
D) Design telephone expense to be billed directly to Design.
E) $100.00 to be paid once in consideration of Design employment agreement.
F) Office space to be provided and paid for by Design at $250.00 per month.
Commissions: To be paid at a rate of 5% of total net sales after $850,000 in sales commencing 8/21/81 and the subsequent 52 wks. to be paid monthly.
II. 2nd year
A) Commission to be based on a straight 5% of sales and to be paid monthly subject to change based on increases and decreases in selling price. (Draw against commissions may be arranged on a mutually agreeable basis.)
B) Design — to provide office space.
C) All other expenses to be salesman's responsibility.
Defendant, however, alleges by affidavit that upon his termination with plaintiff, he was offered six months "severance" pay of one-half of his annual salary of $42,000.00, in addition to a one year contract with Design Poly Bag at the same salary he was earning with the plaintiff. He denied ever having seen the memo concerning his new employment until after he had executed the 21 August 1981 Agreement on Termination.
Defendant resigned from Design Poly Bag on 18 September 1981. In violation of the 23 August 1979 and the 21 August 1981 agreements, defendant immediately began contacting several of the companies with which he had formerly been dealing as a salesman and sales manager for plaintiff. At least two of these (Chatham Manufacturing in Elkin, N.C., and Reeves Bros. Inc. of Cornelius, N.C.) appeared on the list of customers attached to the 21 August Agreement on Termination.
Plaintiff brought suit against defendant on grounds that defendant was breaching covenants contained in the agreements of 23 August 1979 and 21 August 1981. In conjunction with this suit, plaintiff's motion for a temporary restraining order to stop defendant from breaching the covenants was granted 22 October 1981. By consent of the parties, this order remained in effect until 17 November 1981. On 20 November 1981, Judge Snepp entered an order continuing the restraining order. The court ruled on plaintiff's motion for a preliminary injunction pending the outcome of the litigation on 30 November 1981. Judge Snepp denied plaintiff's motion and dissolved the temporary restraining order first entered 22 October 1981, conceding that there was "probable cause to believe that the plaintiff may prevail at the hearing," but that plaintiff had "failed to establish through its evidence the reasonable likelihood of any substantial monetary damage." Plaintiff appealed the denial of its motion for a preliminary injunction to the Court of Appeals, which affirmed in an opinion to which Judge Webb dissented.
A preliminary injunction is interlocutory in nature, issued after notice and hearing, which restrains a party pending final determination on the merits. G.S. 1A-1, Rule 65. Pursuant to G.S. 1-277 and G.S. 7A-27, no appeal lies to an appellate court from an interlocutory order or ruling of a trial judge unless such order or ruling deprives the appellant of a substantial right which he would lose absent a review prior to final determination. As we recently stated in State v. School, 299 N.C. 351, 357-58, 261 S.E.2d 908, 913, appeal dismissed, 449 U.S. 807 (1980):
The purpose of a preliminary injunction is ordinarily to preserve the status quo pending trial on the merits. Its issuance is a matter of discretion to be exercised by the hearing judge after a careful balancing of the equities. Its impact is temporary and lasts no longer than the pendency of the action. Its decree bears no precedent to guide the final determination of the rights of the parties. In form, purpose, and effect, it is purely interlocutory. Thus, the threshold question presented by a purported appeal from an order granting a preliminary injunction is whether the appellant has been deprived of any substantial right which might be lost should the order escape appellate review before final judgment. If no such right is endangered, the appeal cannot be maintained. (Citations omitted.)
The Court of Appeals did not consider the appealability of this interlocutory order. There is little doubt that the denial of the motion for a preliminary injunction in this case deprived plaintiff of a substantial right. In fact, as of the filing of this opinion, plaintiff has essentially lost its case because the eighteen month time limitation under the employment agreements expired in March of 1983. Likewise, as the trial judge noted in his order, had the preliminary injunction been granted, "the plaintiff would in effect have prevailed in the action no matter what the final determination might be." Thus, it appears that in a case such as the one now under consideration, although involving a substantive right of the appealing party, where time is of the essence, the appellate process is not the procedural mechanism best suited for resolving the dispute. The parties would be better advised to seek a final determination on the merits at the earliest possible time. Nevertheless, because this case presents an important question affecting the respective rights of employers and employees who choose to execute agreements involving covenants not to compete, we have determined to address the issues.
As a general rule, a preliminary injunction
is an extraordinary measure taken by a court to preserve the status quo of the parties during litigation. It will be issued only (1) if a plaintiff is able to show likelihood of success on the merits of his case and (2) if a plaintiff is likely to sustain irreparable loss unless the injunction is issued, or if, in the opinion of the Court, issuance is necessary for the protection of a plaintiff's rights during the course of litigation. Waff Bros., Inc. v. Bank 289 N.C. 198, 221 S.E.2d 273; Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348; Conference v. Creech, 256 N.C. 128, 123 S.E.2d 619.
The first stage of the inquiry is, therefore, whether plaintiff is able to show likelihood of success on the merits. In the present case, the trial judge conceded "that there is probable cause to believe the plaintiff may prevail at the hearing" and that "plaintiff makes out an apparent case for issuance of a temporary injunction by showing some recognized equity." Thus the trial court found that there was a reasonable likelihood that the agreements were reasonable and valid and that plaintiff would likely prevail on the merits.
We note that on appeal from an order of superior court granting or denying a preliminary injunction, an appellate court is not bound by the findings, but may review and weigh the evidence and find facts for itself. Pruitt v. Williams, 288 N.C. 368, 218 S.E.2d 348; Telephone Co. v. Plastics, Inc., 287 N.C. 232, 214 S.E.2d 49 (1975); Huskins v. Hospital, 238 N.C. 357, 78 S.E.2d 116 (1953). Plaintiff questioned before the trial court and before the Court of Appeals the effect of a provision in the employment agreements that the agreements would be "governed by the laws of the State of New Jersey." Thus, we must first consider 1) whether the agreements, are, in fact, governed by New Jersey law, and 2) if so, whether there is a likelihood that plaintiff will prevail on the merits in light of New Jersey law.
As to the first question, we stated in Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980), that "where parties to a contract have agreed that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect." We note that plaintiff is a New Jersey corporation with headquarters in New Jersey and that during his employment, the defendant had numerous contacts with the New Jersey office. We therefore hold that the substantive law of New Jersey is applicable to the interpretation of the agreements.
Our review of New Jersey law in the area of the validity and enforceability of covenants not to compete indicates that the governing principles are similar to those in North Carolina. In this State a covenant not to compete is valid and enforceable upon a showing that it is:
1. In writing.
2. Made part of a contract of employment.
3. Based on reasonable consideration.
4. Reasonable both as to time and territory.
5. Not against public policy.
U-Haul Co. v. Jones, 269 N.C. 284, 152 S.E.2d 65 (1967); Exterminating Co. v. Griffin and Exterminating Co. v. Jones, 258 N.C. 179, 128 S.E.2d 139 (1962); Asheville Associates v. Miller and Asheville Associates v. Berman, 255 N.C. 400, 121 S.E.2d 593 (1961); Scott v. Gillis, 197 N.C. 223, 148 S.E. 315 (1929).
The seminal case in New Jersey recognizing the validity and enforceability of noncompetitive clauses in employment agreements is Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970), where that court stated that:
. . . while a covenant by an employee not to compete after the termination of his employment is not, because of the countervailing policy considerations, as freely enforceable, it will nonetheless be given effect if it is reasonable in view of all the circumstances of the particular case. It will generally be found to be reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public . . . .
Id. at 576, 264 A.2d at 56.
As in North Carolina, the New Jersey courts have considered, as a prerequisite to the enforceability of noncompetitive employment agreements:
1. Whether the covenant is reasonable as to time and territory. Mailman, Ross, etc. v. Edelson, 183 N.J. Super. 434, 444 A.2d 75 (1982).
2. Whether it is made a part of a contract of employment and based on reasonable consideration. Hogan v. Bergen Brunswig Corp., 153 N.J. Super. 37, 378 A.2d 1164 (1977).
3. Whether the covenant is against public policy or unreasonable. Ellis v. Lionikis, 162 N.J. Super. 579, 394 A.2d 116 (1978) (invalid where the sole purpose is to prevent competition rather than protect a legitimate interest of the employer).
4. Whether the employee has, in fact, violated the terms of the covenant. Mailman, Ross, etc. v. Edelson, 183 N.J. Super. 434, 444 A.2d 75.
For North Carolina cases see Enterprises, Inc. v. Heim, 276 N.C. 475, 173 S.E.2d 316 (1970); Jewel Box Stores v. Morrow, 272 N.C. 659, 158 S.E.2d 840 (1968); Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154 (1930); Schultz and Assoc. v. Ingram, 38 N.C. App. 422, 248 S.E.2d 345 (1978); Amdar, Inc. v. Satterwhite, 37 N.C. App. 410, 246 S.E.2d 165, disc. rev. den. 295 N.C. 645 (1978).
On the Record before us, we agree that there is a reasonable likelihood that the plaintiff will prevail at the hearing on the merits. The covenant appears to be valid and enforceable. It is in writing, reasonable as to time and territory, was made a part of the contracts of employment, was based on reasonable consideration, and is designed to protect a legitimate business interest of the plaintiff. As a general rule, courts have denied the primary relief of enforcement where the agreement itself is found to be harsh, unjust, unreasonable or void; that is, where the agreement fails to satisfy one or more of the criteria insuring its validity. See 43A C.J.S. Injunctions 95 (1978). In every case where the covenant not to compete is found to be reasonable and valid, however, the plaintiff is entitled to a remedy; either the agreement must be enforced or the court must find that plaintiff has an adequate remedy at law for money damages.
The trial court, having determined that the plaintiff would likely prevail on the merits, nonetheless found that:
In this case the plaintiff's evidence does not establish prima facie a case of irreparable damage. All of the statements contained in the complaint and affidavit are conclusory and the only inference which can be drawn is that the damages, if any which will be sustained by the plaintiff are speculative and conjectural. In view of the evidence as to the manner in which the sales of polyethylene are carried out, I cannot find that the plaintiff would as the result of defendant's activity sustain any damage, reparable or irreparable.
However, even though a plaintiff makes out an apparent case for issuance of a temporary injunction by showing some recognized equity, a Court must nevertheless exercise its sound discretion in determining whether the writ should issue, and to this end weigh the conflicting affidavits relative to the conveniences and inconveniences which would result from the issuance of the writ and the Court should refuse to grant the writ when to do so would cause great injury to the defendant and confer little benefit in comparison upon the plaintiff. Huskins v. Hospital, 238 N.C. 357.
In light of this I find that balancing the equities, the defendant would be caused tremendous injury by issuance of the injunction.
The Court of Appeals agreed with the trial court, holding that "the trial court did not abuse its discretion in denying the injunction based on inadequate showing of irreparable harm to plaintiff . . . ." A.E.P. Industries v. McClure, 58 N.C. App. at 158, 293 S.E.2d at 234.
We first emphasize that in determining whether a preliminary injunction should issue, the trial court's second inquiry is not limited to the question of irreparable injury. The injunction will issue "if, in the opinion of the Court, issuance is necessary for the protection of a plaintiff's rights during the course of litigation." Investors, Inc. v. Berry, 293 N.C. at 701, 239 S.E.2d at 574 (emphasis added).
We further note that there are two important aspects of this case which distinguish it substantively and procedurally from the more usual case in which a preliminary injunction is sought. The first is that the ultimate relief plaintiff seeks is enforcement of a covenant not to compete. The promised performance by the employee is forbearance to act and the remedy is one for specific performance of the contract in the nature of an injunction prohibiting any further violation of it. See U-Haul Co. v. Jones, 269 N.C. 284, 152 S.E.2d 65; 5A Corbin on Contracts 1138 (1964).
The second distinguishing feature of this case is that the decision made at the preliminary injunction stage of the proceedings becomes, in effect, a determination on the merits. This is so because the validity of the covenant depends, among other things, on the duration of the time limitation which, in order to be reasonable, must be brief. The case is clothed with immediacy. Frequently the time limitation will have expired prior to final determination. Moreover, because the primary relief sought by the plaintiff is a permanent injunction, many of the considerations involved in the decision to grant or deny the preliminary injunction parallel those involved in a final determination on the merits. Specifically, the court must decide whether the remedy sought by the plaintiff is the most appropriate for preserving and protecting its rights or whether there is an adequate remedy at law.
We recognize that injunctive relief is equitable in nature and that some courts, in weighing the equities, have determined that because plaintiff can obtain full and complete justice by a judgment for money damages, and because hardship to the defendant outweighs any hardship to the plaintiff, plaintiff has not met his burden of showing that it has or is likely to sustain irreparable injury. 43A C.J.S. Injunctions 95. The focus in cases such as the one now under consideration, however, is not only whether plaintiff has sustained irreparable injury, but, more important, whether the issuance of the injunction is necessary for the protection of plaintiff's rights during the course of litigation; that is, whether plaintiff has an adequate remedy at law.
Plaintiff argues persuasively, and there is authority to support the argument, that in a "noncompetition agreement, breach is the controlling factor and injunctive relief follows almost as a matter of course; damage from the breach is presumed to be irreparable and the remedy at law is considered inadequate. It is not necessary to show actual damage by instances of successful competition, but it is sufficient if such competition, in violation of the covenant, may result in injury." 43A C.J.S. Injunctions 95. In fact, the agreements which defendant signed each contain the following language, which has been recognized as evidence of the inadequacy of money damages. See Amdar, Inc. v. Satterwhite, 37 N.C. App. 410, 246 S.E.2d 165, disc. rev. den. 295 N.C. 645 (1978).
I acknowledge that the remedies at law for the breach of any of the restrictive covenants contained in the immediately preceding paragraph shall be deemed to be inadequate and that A.E.P. Industries, Inc. shall be entitled to injunctive relief for any such breach.
It is a basic principle of contract law that one factor used in determining the adequacy of a remedy at law for money damages is the difficulty and uncertainty in determining the amount of damages to be awarded for defendant's breach. See 5A Corbin on Contracts 1142. Thus, "injury is irreparable where the damages are estimable only by conjecture, and not by any accurate standard." 42 Am. Jur.2d Injunctions 49 (1969). In fact, in holding that a plaintiff was entitled to injunctive relief for breach of a covenant not to compete, this Court characterized as "untenable" the argument that a contract provision for liquidated damages provided an adequate remedy at law. U-Haul Co. v. Jones, 269 N.C. at 287, 152 S.E.2d at 67. This Court has further held that "[t]o constitute irreparable injury it is not essential that it be shown that the injury is beyond the possibility of repair or possible compensation in damages, but that the injury is one to which the complainant should not be required to submit or the other party permitted to inflict, and is of such continuous and frequent recurrence that no reasonable redress can be had in a court of law." Barrier v. Troutman, 231 N.C. 47, 50, 55 S.E.2d 923, 925 (1949) (emphasis added).
We cannot agree with the implication of the decisions below that although plaintiff is legally entitled to some measure of relief, it nevertheless has no remedy in law or in equity. Those decisions seem to imply that plaintiff, unable to assign a determinable value to defendant's competitive practices, has no adequate remedy at law. And because it has sustained no "damage, reparable or irreparable," equitable relief, too, is foreclosed. Yet plaintiff has been given a legally recognizable right to reasonable protection against competition:
`Courts scrutinize carefully all contracts limiting a man's natural right to follow any trade or profession anywhere he pleases and in any lawful manner. But it is just as important to protect the enjoyment of an establishment in trade or profession, which its possessor has built up by his own honest application to every-day duty and the faithful performance of the tasks which every day imposes upon the ordinary man. What one creates by his own labor is his. Public policy does not intend that another than the producer shall reap the fruits of labor. Rather it gives to him who labors the right by every legitimate means to protect the fruits of his labor and secure the enjoyment of them to himself. Freedom to contract must not be unreasonably abridged. Neither must the right to protect by reasonable restrictions that which a man by industry, skill and good judgment has built up, be denied.'
Scott v. Gillis, 197 N.C. 223, 228, 148 S.E. 315, 317-318 (1929). See Enterprises, Inc. v. Heim, 276 N.C. 475, 173 S.E.2d 316; Jewel Box Stores v. Morrow, 272 N.C. 659, 158 S.E.2d 840. Plaintiff was clearly entitled to ultimate equitable relief — the enforcement of the covenant prohibiting defendant from engaging in competitive practices within the time and territory specified, assuming that the agreement was found to be valid and legally binding:
The general rule with respect to enforceable restrictions is stated in 9 A.L.R. 1468: `It is clear that if the nature of the employment is such as will bring the employee in personal contact with patrons or customers of the employer, or enable him to acquire valuable information as to the nature and character of the business and the names and requirements of the patrons or customers, enabling him by engaging in a competing business in his own behalf, or for another, to take advantage of such knowledge of or acquaintance with the patrons and customers of his former employer, and thereby gain an unfair advantage, equity will interpose in behalf of the employer and restrain the breach . . . providing the covenant does not offend against the rule that as to time . . . or as to the territory it embraces it shall be no greater than is reasonably necessary to secure the protection of the business or good will of the employer.'
Asheville Associates v. Miller and Asheville Associates v. Berman, 255 N.C. at 403-404, 121 S.E.2d at 595. See Enterprises, Inc. v. Heim, 276 N.C. 475, 480, 173 S.E.2d 316, 320; Moskin Bros. v. Swartzberg, 199 N.C. 539, 155 S.E. 154.
Having thus determined that plaintiff's principal relief was properly and necessarily equitable in nature in the form of an injunction to enforce the covenant, we hold that plaintiff was entitled to a preliminary injunction. Beginning with Cobb v. Clegg, 137 N.C. 153, 49 S.E. 80 (1904), this Court has consistently adhered to the proposition that where the principal relief sought is a permanent injunction, it is particularly necessary that the preliminary injunction issue. In speaking of the distinction between the old forms of common injunctions and special injunctions, this Court wrote:
The former was granted in aid of or as secondary to another equity, as in the case of an injunction to restrain proceedings at law in order to protect and enforce an equity which could not be pleaded, and is issued, of course, upon the coming in of the bill, without notice. As soon as the defendant answered he could move to dissolve the injunction, and it was then for the court, in the exercise of its sound discretion, to say whether, on the facts disclosed by the answer, or, as it is technically termed, upon the equity confessed, the injunction should be dissolved or continued to the hearing. If the facts constituting the equity were fully and fairly denied, the injunction was dissolved unless there was some special reason for continuing it. Not so with a special injunction, which is granted for the prevention of irreparable injury, when the preventive aid of the court of equity is the ultimate and only relief sought and is the primary equity involved in the suit. In the case of special injunctions the rule is not to dissolve upon the coming in of the answer, even though it may deny the equity but to continue the injunction to the hearing if there is probable cause for supposing that the plaintiff will be able to maintain his primary equity and there is a reasonable apprehension of irreparable loss unless it remains in force, or if in the opinion of the court it appears reasonably necessary to protect the plaintiff's right until the controversy between him and the defendant can be determined. It is generally proper, when the parties are at issue concerning the legal or equitable right, to grant an interlocutory injunction to preserve the right in statu quo until the determination of the controversy, and especially is this the rule when the principal relief sought is in itself an injunction, because a dissolution of a pending interlocutory injunction, or the refusal of one, upon application therefor in the first instance, will virtually decide the case upon its merits and deprive the plaintiff of all remedy or relief, even though he should be afterwards able to show ever so good a case.
Id. at 158-59, 49 S.E. at 82-83 (emphasis added). Pleaters, Inc. v. Kostakes, 259 N.C. 131, 129 S.E.2d 881 (1963); Finance Company v. Jordan, 259 N.C. 127, 129 S.E.2d 882 (1963); Church v. College, 254 N.C. 717, 119 S.E.2d 867 (1961); Coach Lines v. Brotherhood, 254 N.C. 60, 118 S.E.2d 37 (1961); Studios v. Goldston, 249 N.C. 117, 105 S.E.2d 277 (1958) (plaintiff was entitled to have a temporary restraining order continued as a matter of law); Boone v. Boone, 217 N.C. 722, 9 S.E.2d 383 (1940).
Because of the need for immediacy of appropriate relief in cases dealing with covenants not to compete, as for example in the present case where defendant contracted not to engage in a competitive business for only eighteen months, the law as stated above is particularly applicable. We hold that where the primary ultimate remedy sought is an injunction; where the denial of a preliminary injunction would serve effectively to foreclose adequate relief to plaintiff; where no "legal" (as opposed to equitable) remedy will suffice; and where the decision to grant or deny a preliminary injunction in effect results in a determination on the merits, plaintiff has made a showing that the issuance of a preliminary injunction is necessary for the protection of its rights during the course of litigation.
Finally, we believe that our holding is in accordance with the policy of our State to encourage growth in new "high tech" industry. "The rapid technological advances accompanying North Carolina's industrial growth and increased employment opportunities, especially for technical and professional occupations, gives added significance and immediacy to the problem of the enforceability of covenants not to compete contained in employment contracts." H. Constangy, Employment Contract Covenants Not to Compete: Enforceability Under North Carolina Law, 10 Wake Forest L. Rev. 217 (1974).
While plaintiff here has been denied the effective equitable relief to which it was entitled (the preliminary injunction), since the eighteen month restriction has now completely elapsed, there still remains the plaintiff's other claims for relief including a claim for substantial money damages.
The decision of the Court of Appeals is reversed and the case is remanded to that court for remand to the Superior Court, Mecklenburg County, for further proceedings not inconsistent with this opinion.
Reversed and remanded.