As I was reviewing recent New York employment law cases, I came across an interesting one dealing with the enforceability of non-compete agreements. In The Ayco Company, L.P. v. Brian D. Feldman (October 2010), Plaintiff, a financial services firm, brought a lawsuit against a former employee, alleging that he breached a ninety-day non-compete provision contained in his employment contract. As a result, Plaintiff sought a preliminary injunction enforcing the terms of the agreement.
At the time he was hired, Defendant signed an Employment Agreement ("Agreement"), which was thereafter revised to include a new non-compete provision. Pursuant to the terms of the Agreement, Defendant agreed that he would give Plaintiff ninety days notice of termination, during which time he would remain an employee of Plaintiff and would continue to receive his base salary. The Agreement further stated that if Defendant terminated employment prior to the end of the notice period, he would not work for a competitor anywhere in the United States for ninety days or for the unfulfilled balance of the notice period.
Needless to day, Defendant resigned abruptly without notice to begin working for a direct competitor, claiming that the ninety-day notice and non-compete provision were not reasonable and hence unenforceable. Defendant also claimed that the revised agreement was presented to him on a "take it or leave it basis" - that if he did not sign it, he would be fired. He characterized the Agreement as "onerous" and "unfair" because it denied him the ability to pursue his chosen profession and did not provide for adequate compensation during the notice period.
Under New York law, a restrictive covenant not to compete is enforceable by way of an injunction if the covenant is reasonable in time and geographic area. A restrictive covenant is enforceable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. Thus, courts must weigh the need to protect the employer's legitimate business interests against the employee's concern regarding the possible loss of livelihood, a result strongly disfavored by public policy in New York.
Here, the United States District Court for the Northern District of New York (New York federal court) found that the ninety-day period was well within what has been found to be a reasonable time frame for non-compete provisions. The Court found that the geographic scope of the covenant (throughout the United States) was also reasonable. Furthermore, the Court found that the non-compete provision did not impose an undue hardship on Defendant, since it entitled Defendant to continue to receive his salary during the reasonable notice period. Lastly, the Court held that the fact that the Agreement was executed during Defendant's employment, and was thus a condition of his continued employment, did not suffice to show that the Agreement was unenforceable.
In sum, the Court granted Plaintiff's preliminary injunction precluding Defendant from working for a competitor for ninety days, and also directed Plaintiff to continue paying Defendant's salary for the ninety-day period. It's also worth noting that this case reinforces the principle that an employer's threat of termination for refusing to sign a non-compete agreement does not constitute duress or coercion.
