In Kinesis Advertising, Inc. v. Hill, 652 S.E.2d 284 (N.C. Ct. App. 2007), the North Carolina Court of Appeals reversed the trial court’s grant of summary judgment and touched on two important issues under North Carolina law. Kinesis filed the action, attempting to enforce non-compete and non-solicitation provisions against its former employees, Larry Hill and Dan Robinette, as well as the former employees’ new business, Altyris Incorporated, among other claims. The trial court found that the agreement containing the restrictive covenants was unenforceable, and therefore, granted summary judgment in favor of the defendants on the breach of contract claim. The trial court had two bases for finding that the covenants were unenforceable: (1) Kinesis did not provide consideration to Hill and Robinette when they signed the agreements, and (2) the restrictions were overly broad. The Court of Appeals reversed on both grounds.
Kinesis contended on appeal that it had transferred shares to Hill and Robinette. The Court of Appeals found conflicting evidence as to whether Kinesis had actually done so. The parties agreed that Hill and Robinette never received stock certificates representing their shares, so the Court of Appeals sought to determine whether Kinesis had performed the tasks necessary to issue uncertificated shares under North Carolina’s Business Corporations Act. The Court of Appeals found conflicting evidence on the point and concluded that final determination of the question was a province of the jury. The Court of Appeals concluded that ”a genuine issue of material fact remains as to whether the Kinesis shares promised to Mr. Hill and Mr. Robinette were actually issued, such that they constituted valuable consideration to make the covenant-not-to-compete and confidentiality and non-solicitation agreement valid and enforceable.”
On the question of the scope of activity proscribed by the agreements, the Court of Appeals distinguished between non-competes that prevent employees from performing any type of activity for competitors and non-competes that prevent employees from performing acts in competition with their former employer. Kinesis’s agreement was the latter rather than the former and was therefore enforceable because “the restrictions imposed by Kinesis in the covenant-not-to-compete are ‘no wider in scope than is necessary to protect the business of the employer.’” The Court of Appeals concluded by stating that the question of whether Hill and Robinette actually were engaging in activities similar to those they performed for Kinesis was a matter for a jury.