ACREE, Chief Judge.
This case involves a noncompetition agreement executed by Donald E. Brown while he was an employee of Charles T. Creech, Inc. He later left his employment with Creech, Inc. to work for Standlee Hay Company, Inc., an act Creech, Inc. contends constituted breach of the agreement. Following preliminary proceedings, the Fayette Circuit Court entered summary judgment in favor of Brown and Standlee Hay on Creech, Inc.'s claims that Brown breached contracts incident to his employment, that Standlee Hay illegally interfered with Brown's employment-related contracts and the conduct of Creech, Inc.'s business, and that both defendants committed fraud. We conclude that Creech, Inc. was entitled to additional discovery to resolve the dispute and entry of summary judgment was premature.
Facts and procedure
Charles T. Creech, Inc. is a Lexington, Kentucky-based provider of hay and straw servicing customers in Kentucky, Ohio, New York, other unspecified locations in the United States, and overseas. Standlee Hay is a grower of hay whose operation is headquartered in Idaho; it sells the hay it grows in addition to hay it purchases from other suppliers. Our review of the record has not revealed the full geographic scope of Standlee Hay's operations, but its business unquestionably extends into Kentucky. Both businesses sell and distribute their product primarily to horse farms. Charles T. Creech is the president of Creech, Inc., and Mike Standlee is the president of Standlee Hay; both presidents are members of the Kentucky Thoroughbred Farm Managers' Club.
After already having spent nearly two decades working in the industry in undisclosed capacities, Brown began employment with Creech, Inc. in 1990. Over the course of his eighteen-year employment with Creech, Inc., he served as a delivery driver, a salesman, and a dispatcher. In 2006, while Brown was acting as a salesman, officials of Creech, Inc. asked him to sign a document entitled "Conflicts of Interest." In addition to prohibitions against employee behavior which might conflict with the employer's business interests, this document contained a provision relevant to the instant dispute, the noncompetition clause. That portion of the agreement provided:
The document also included the following admonition:
Brown would continue his employment with Creech, Inc. for just over two more years. Approximately eight months after executing the agreement, Brown was reassigned to a dispatcher position. His salary did not change appreciably.
In 2008, Brown left employment with Creech, Inc. for a position with Standlee Hay which would require, among other duties, that he act as a salesman to potential customers in Kentucky. Creech, Inc. executed a limited waiver of the noncompetition clause, permitting Brown to be employed by Standlee Hay without breaching the agreement, so long as he did not assist his new employer in business pursuits which directly or indirectly competed with those of Creech, Inc. Creech, Inc. now contends this waiver was based upon false information provided by Brown and Standlee Hay.
After receiving the waiver, Standlee Hay notified Creech, Inc. that Brown would be conducting business on behalf of Standlee Hay in Kentucky and, necessarily, would be required to contact Creech, Inc.'s past and current clients. Neither Brown nor his new employer received any response from Creech, Inc., and Brown proceeded with his new job.
Believing that Brown had breached the noncompetition clause and that by employing Brown Standlee Hay was improperly interfering with its business operations, Creech, Inc. filed suit in Fayette Circuit Court. The circuit court entered a temporary injunction against Brown and Standlee Hay, prohibiting Brown from conducting business in Kentucky on Standlee Hay's behalf. Brown and Standlee Hay sought relief from the injunction from this Court pursuant to CR 65.07, and relief was granted. In so doing, the Court made several statements about the merits of the underlying issues. Those statements suggested Creech, Inc.'s claims must fail.
On remand, and understandably believing the CR 65.07 order made it clear Creech, Inc. could not succeed on the merits, the circuit court entered summary judgment in favor of Brown and Standlee Hay. The order of summary judgment included no findings of fact or conclusions of law, neither of which is required under CR 52.01. This appeal followed.
Standard of review
CR 56 authorizes a trial court to enter summary judgment when the evidence "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56.03. In considering a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party and may enter summary judgment only if it appears impossible for the nonmovant to prevail. Steelvest, Inc. v. Scansteel Serv. Ctr, Inc., 807 S.W.2d 476, 480, 482 (Ky. 1991). Furthermore, "[b]ecause summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court's decision and will review the issue de novo." Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001) (footnote omitted).
A word about injunctive relief
Before turning to the Discussion portion of this opinion, we must take a brief detour to discuss a matter of procedure which has come to dominate this case. That matter is this Court's order requiring dissolution of the injunction. Both parties have expended considerable energy arguing about the effect the order should or should not have in this appeal. The appellees believe it is controlling; Brown even contends it should be deemed law of the case. Creech, Inc. disputes that it is binding and notes the inquiry before the motions panel was limited to the propriety of issuing a temporary injunction.
Whatever effect it may have had on the parties and the circuit court prior to this appeal, the order mandating dissolution of the injunction is interlocutory and therefore nonbinding on the merits. CR 65.07; Progress Laundry Co. v. Hamilton, 208 Ky. 348, 270 S.W. 834, 937 (1925) (stating a previous ruling on an injunction is not binding, but is persuasive and will be followed if its reasoning is found to be sound). It was entered as a result of an interlocutory appeal and on the basis of a limited record. CR 65.07(3). It has the same status as other interlocutory orders in that it may be changed at any time prior to the finality of the action. Wilson v. Russell, 162 S.W.3d 911, 913 (Ky. 2005). The law of the case doctrine does not apply to interlocutory orders, so this Court is not bound by its previous order. Watkins v. Pinkston, 190 Ky. 455, 227 S.W. 583 (1921).
We now turn to our review of the entry of summary judgment in favor of Brown and Standlee Hay.
Creech, Inc. argues the circuit court erred in entering summary judgment with respect to its claim that Brown breached the noncompetition agreement and the other claims which arose from that alleged breach. To that end, Creech, Inc. maintains the agreement was supported by valid consideration and that its terms are reasonable; Creech, Inc. also contends that if the agreement was fatally lacking in a reasonable geographic limitation, the circuit court was empowered to establish such a limitation. The appellant further believes that additional discovery was warranted.
The appellees counter that the agreement's restriction on Brown's future employment is invalid because its terms were unreasonable and because it lacked consideration. They also assert the circuit court did not possess the authority to insert a reasonable geographical limitation into the agreement and that Creech, Inc. waived any rights it did secure under the contract.
A. Reasonableness and validity of the noncompetition agreement
Both parties point to certain of their factual circumstances which they believe are dispositive of the question whether the covenant not to compete is valid and enforceable because its terms are reasonable. The proper inquiry, however, is more complex than either party would have us believe.
It is tempting in disputes concerning noncompetition agreements to turn to existing case law in search of a single guiding principle, or perhaps a collection of hard-and-fast rules which determine the validity of any given covenant not to compete. In fact, very few bright-line rules govern the inquiry now before us.
For example, the parties argue strenuously in their briefs about whether a trial court can insert reasonable geographical restrictions into a noncompetition agreement which contains no such restrictions at all. The general rule that covenants not to compete "are not enforceable where they are . . . unlimited as to space but limited as to time," in the context of employment contracts has never been explicitly overturned;
Despite the lack of universally applicable rules, some guiding principles are clear. First, as noted in Kegel, trial courts are empowered to modify unreasonable provisions of covenants not to compete, and doing so will save an agreement which might otherwise be unenforceable. 297 S.W.3d at 913; Hammons v. Big Sandy Claims Serv., Inc., 567 S.W.2d 313, 315 (Ky. App. 1978).
Furthermore, the circuit court's inquiry into the reasonableness of a covenant not to compete is guided by the following principle:
Hammons, 567 S.W.2d at 315 (applying the principles articulated in Ceresia v. Mitchell, 242 S.W.2d 359 (Ky. 1951) to its analysis of a noncompetition clause of an employment contract). Inherent in this rule is a need for case-specific flexibility. The reason is that the factual circumstances of a covenant not to compete will necessarily vary from industry to industry, from employer to employer, and from region to region. Attempting to erect a set of bright-line rules to govern courts' treatments of these agreements would be futile and counterproductive.
The proper approach to the rule articulated in Hammons and elsewhere can be reduced to a series of factors which should be considered in nearly every case.
The nature of the industry:
In examining this factor, the trial court should determine whether the industry in which the employer is engaged, and in which the employee desires to continue working, is highly competitive. Is there a limited opportunity to participate in this industry? How many players are there in the market, and are their respective market shares relatively large or small? Central Adjustment Bureau, Inc. v. Ingram Assocs., Inc., 622 S.W.2d 681, 685-86 (Ky. App. 1981). Is there a history of competitors trying to gain knowledge of one another's data or methods in an effort to gain a competitive advantage? See id. Is there a history of "poaching" competitors' employees so as to eradicate competition? Higdon Food Servs. v. Walker, 641 S.W.2d 750, 752 (Ky. 1982). Does each employer develop its own competitive strategy, business model, or technology which determines how successful that particular competitor will be? See Central Adjustment Bureau, 622 S.W.2d at 681. Or are all the competitors succeeding primarily according to their own skills which are not kept confidential or secret, including their reliability, people skills, reputation, competitive prices, and good service?
Characteristics of the employer:
The trial court should seek to determine who the employer is in the context of the industry and the geographical region. Central Adjustment Bureau, 622 S.W.2d at 686. What is the scope of the employer's operations, both in terms of geographic reach and number of customers serviced or products distributed? How many employees work for the employer? What roles do those employees play in the company and to what type of information are they exposed? Id.; Hammons, 567 S.W.2d at 315. What is the employer's status in the industry and what share of the market does it serve?
The history of the relationship between the employer and employee:
This factor will help determine the fairness of the employer's insistence that the employee enter the covenant not to compete. When, relative to the onset of the employment relationship and the end of the employment relationship, was the agreement signed? Id.; see also Crowell v. Woodruff, 245 S.W.2d 447, 450 (Ky. 1951) ("There must be read into the contract an implied obligation to retain [the employee] in the employment such period of time as would deserve the right to enforce the obligation he assumed not to enter other employment for a year.").
The interests the employer seeks to protect:
This portion of the inquiry should focus on whether the employee's subsequent hiring by a competitor of the employer would essentially deprive the employer of its competitive position. Or, rather, would it be no different than if the competitor had hired an employee from another competitor in the market? In other words, would the employee's departure — and subsequent employment by a competitor — necessarily cause the employer's own innovation or distinctive approach to its business to be used against it to its detriment?
An important part of this inquiry is whether the agreement is narrowly tailored to protect its interests. Crowell, 245 S.W.2d at 449 (a "test of reasonableness [is] whether ... the restraint imposed upon the employee ... is more comprehensive than is necessary to afford fair protection to the legitimate interests of the employer ... [.]") (citations omitted).
Hardship on the employee:
For this inquiry, the court should look to the specific limitations of the agreement — what spatial, temporal, and employment restrictions are there on the employee's ability to work, and what is their impact on the employee? Obviously, the broader the restriction, the greater the burden will be. A trial court might inquire how long the employee has worked in the industry, both for the employer and for others. How likely is it that the employee will be able to find gainful employment if he complies with the covenant's restrictions? Will enforcing the covenant effectively compel the employee to part with his education and experience to find employment in a new sector? See Crowell, 245 S.W.2d at 449-50. In sum, the court should determine whether the restrictions on future employment intended to protect the employer's interests are not so broad as to unduly burden the employee's ability to find work. Where the restrictions on future employment are narrowly tailored to meet the employer's needs, they should typically be enforced. See, e.g., Hammons, 567 S.W.2d at 315 (A covenant not to compete was reasonable where it did not prevent the subject employee from working in the employer's industry, but only prohibited him from going into business for himself in that industry for one year.).
This is also the point in the analysis where the trial court may modify certain provisions of the noncompetition agreement if doing so would not work an injustice upon the parties, if a modification would make the agreement reasonable, and if the court determines in its discretion that it is wise to do so. See, Kegel, 297 S.W.3d at 913.
Impact on the public:
Finally, the trial court must assess how, if at all, enforcement of the covenant will affect the public. Does the covenant restrict the public's access to the types of goods or services offered by the employer? Are the consequences and extent of that restriction acceptable given the nature of the service provided by the employer and the needs of the community? Hall v. Willard & Woolsey, P.S.C., 471 S.W.2d 316, 318 (Ky. 1971)("[T]he health of the public is better served if squabbles among physicians are averted by prior agreements and the public is not a pawn in the squabble."); Central Adjustment Bureau, 622 S.W.2d at 686.
Our review of the record reveals that the evidence before the circuit court was insufficiently developed to resolve all of the factors listed above, and indeed to answer the question whether, "on consideration of the subject, nature of the business, situation of the parties[,] and circumstances of the particular case," the noncompetition clause now at issue "is such only as to afford fair protection to the interests of the [employer] and . . . not so large as to interfere with the public interests or impose undue hardship on the party restricted." Hammons, 567 S.W.2d at 315.
We must therefore reverse the summary judgment order as prematurely issued and remand the matter to give the parties the opportunity to put forth sufficient proof for proper resolution of the case under this analysis.
B. Sufficiency of consideration
To the extent the entry of summary judgment may have been premised upon the court's conclusion that the noncompetition agreement lacked consideration, we also reverse.
C. Questions of fact remain regarding the waiver issue
We turn now to the possibility that summary judgment was entered on a finding that Creech, Inc. waived its rights under the covenant not to compete.
"The common definition of a legal waiver is that it is a voluntary and intentional surrender or relinquishment of a known right, or an election to forego an advantage which the party at his option might have demanded or insisted upon." Greathouse v. Shreve, 891 S.W.2d 387, 390 (Ky. 1995) (quoting Barker v. Stearns Coal & Lumber Co., 291 Ky. 184, 163 S.W.2d 466, 470 (1942)). Whether Creech, Inc. intentionally waived any or all of its rights under the agreement is a question of fact, and summary judgment was therefore improper on the basis of waiver. Insurance Co. of N. Am. v. Forwood, Orths, 13 Ky.L.Reptr. 261 (Ky. Super. Feb. 18, 1891) ("where the evidence upon this point is conflicting, waiver is a question of fact to be submitted to the jury.").
Genuine issues of material fact regarding waiver remain. Therefore, to the extent summary judgment was premised upon the implicit holding that Creech, Inc. waived its right to enforce the agreement, the judgment is reversed for additional discovery.
The entry of summary judgment in favor of Brown and Standlee Hay is reversed. We remand this matter to the circuit court for further proceedings not inconsistent with this opinion.
Our holding will consequently affect only Creech, Inc.'s claim of breach of the covenant not to compete and the other claims arising therefrom. Summary judgment on the alleged breach of the nondisclosure provision is not disturbed, and neither is entry of summary judgment on any of the remaining claims to the extent those claims are premised on breach of the nondisclosure agreement.
Leibman and Nathan, supra, at 1533-34 (footnotes omitted).