New York Employment Lawyer Blog

If a new employer hires an employee in violation of the employee's valid non-compete agreement, the employee may be liable for a breach of contract. Since the new employer was not a party to the non-compete agreement, the new employer can't be liable for breach of contract.

However, the new employer may nonetheless face liability for tortious interference with contractual relations. In New York, it is unlawful for a third party to intentionally interfere with the contractual relationship between two other parties, absent a proper purpose. An employer can thus bring a claim for tortious interference with contract against a competitor who intentionally entices an employee to work for it in violation of the employee's non-competition or non-disclosure agreement.

The elements of a claim for tortious interference with a contract are: (1) a valid contract between plaintiff and a third party, (2) defendant's knowledge of the contract, (3) defendant's unjustified, deliberate inducement of the third party's breach of the contract, (4) actual breach of the contract, and (5) damages resulting from the breach. Sony Music Entertainment, Inc. v. Werre (2010).

The defenses by the new employer to a tortious interference claim typically include: (1) the new employer was unaware of the non-compete agreement; (2) the non-compete agreement is not enforceable; and/or (3) the new employer was justified in hiring and continuing to employ the individual in question.

"Where there has been no breach of an existing contract . . . a cause of action for tortious interference with contract will not lie." Bajan Group, Inc. v. Consumers Interstate Corp. (2010). Moreover, if the new employer had no knowledge of the existing non-compete agreement when it hired the employee, the new employer will not be liable for tortious interference with contractual relations. Delfino Insulation Co., Inc. v. Jaworowski (2008).

It is important to always consult with a New York non-compete attorney before hiring an employee that is subject to a non-compete agreement with a former employer.

On January 24, 2011, in Thompson v. North American Stainless, LP, the United States Supreme Court held that an employee who does not directly engage in a protected activity can still assert a claim for retaliation under Title VII of the Civil Rights Act as someone who falls within the "zone of interests" of protection afforded by the statute. More specifically, the Court found that an employee who was fired after his fiancé filed a sex discrimination charge with the EEOC could bring a claim for unlawful retaliation under Title VII.

In this case, the Plaintiff and his fiancé both worked for Defendant. The Plaintiff's fiancé filed a charge of discrimination with the EEOC, and three weeks later, the Defendant terminated Plaintiff's employment. The Plaintiff thereafter brought a lawsuit under Title VII, claiming that he was fired in retaliation for his fiancé filing her complaint. The Defendant argued that only the employee who actually complained could sue - not the complaining party's fiancé.

The Supreme Court held that "Title VII's anti-retaliation provision must be construed to cover a broad range of employer conduct." The statute "prohibits any employer action that well might have dissuaded a reasonable worker from making or supporting a charge of discrimination." The Court then noted, "We think it obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired." In other words, the purpose of Title VII's anti-retaliation provision would be undermined if an employer could simply fire a third party to punish an employee who complains about discrimination.

The Court determined that an employee is thus eligible to bring a Title VII claim when that person "falls within the 'zone of interests' sought to be protected by the statutory provision." Since Title VII was meant to protect employees from unlawful actions by their employers, and the Plaintiff was an employee of Defendant, the Plaintiff was protected by the statute.

However, the Court also stated: "Although we acknowledge the force of this point, we do not think it justifies a categorical rule that third-party reprisals do not violate Title VII. . . . Given the broad statutory test and the variety of workplace contexts in which retaliation may occur, Title VII's anti-retaliation provision is simply not reducible to a comprehensive set of clear rules." In layman's terms, there is no bright line test for determining who is protected from retaliation under Title VII.

As we now know that third parties have standing to sue for retaliation under Title VII, it's more important than ever for employers to consult with a New York employment attorney before taking any adverse employment action against a spouse, fiancé, or family member of an employee who recently complained.

In Sasqua Group, Inc. v. Courtney (E.D.N.Y. Aug. 2, 2010), an executive search consulting firm specializing in the recruitment and placement of professionals in the financial services industry brought suit against a former employee claiming misappropriation of trade secrets. The Eastern District of New York held that although an employer's customer list may have been a trade secret years ago, "the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story."

According to the Plaintiff, when the Defendant was an employee, she had access to the Plaintiff's customer database - a database that was the "lifeblood" of its business. The database contained client contact information, individual candidate profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, resumes and other information.

However, the Defendant testified that "virtually all personnel in the capital markets industry ... have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases." Moreover, she argued, "the contact information that a search firm may assemble in a database is almost immediately obsolete."

Under New York law, a trade secret is any formula, pattern, device or compilation of information which is one uses in his business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Factors taken into consideration in determining whether information constitutes a trade secret include: (1) the extent to which the information is known outside the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business and its competitors; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Ashland Management v. Janien (1993).

A customer list may qualify as a "trade secret" if the company can establish that it made a substantial effort to keep the information confidential and the information is not otherwise readily available.

In this case, the key issue the court focused on was whether the information sought to be protected as a trade secret was known outside the business or readily ascertainable. The court concluded that the information publicly available "exceeded the amount and level of detail contained in the Sasqua database."

Additionally, the court sided with the Defendant on the issue of whether the Plaintiff undertook reasonable measures to protect the secrecy of the alleged trade secrets. The Defendant submitted a declaration from Plaintiff's computer technician that Plaintiff actually misappropriated the client list from its prior employer and that Plaintiff was "extremely lax" in its efforts to safeguard the data. As the court stated, "Sasqua failed to take even basic steps to protect the secrecy of the information contained in its database."

This case highlights the importance of having enforceable non-compete, non-solicitation, and confidentiality agreements with employees and consultants, as it will be difficult for employers to protect contact lists as trade secrets without a confidentiality agreement and restrictive covenant governing the parties' relationship.

If you have any questions as to whether certain information is protectable as a trade secret, please contact a New York non-compete attorney.

In El Sayed v. Hilton Hotels Corporation (Dec. 17, 2010), the U.S. Court of Appeals for the Second Circuit (Federal court covering New York) held that temporal proximity alone is insufficient to support a claim of retaliation under Title VII.

In this case, the Plaintiff, a hotel employee of Egyptian descent, alleged that the Defendant violated Title VII when it terminated his employment in retaliation for complaining about a co-worker's derogatory comment concerning his background and religion. More specifically, the Plaintiff claimed that he was terminated approximately three weeks after he complained to the Defendant that a co-worker referred to him as a "Terrorist Muslim Taliban."

The Defendant stated that the Plaintiff was not terminated based on his complaint about the co-worker's comment, but rather, was terminated based upon the fact that the Plaintiff had failed to disclose certain information on his employment application - an omission that constituted grounds for dismissal under the Defendant's employment policies.

When analyzing unlawful retaliation cases, the courts use a burden-shifting standard, which first requires the employee to make out a prima facie case of retaliation under Title VII. However, making out a prima facie case establishes only a rebuttable presumption of retaliation. The burden then shifts to the employer to articulate a legitimate non-retaliatory basis for the adverse employment action. At this point, the burden shifts back to the employee to come forward with evidence establishing that it is more likely than not that the employer's decision was motivated, at least in part, by a retaliatory animus. In other words, the employee must produce some evidence showing that the articulated reason for the adverse employment action is merely an excuse to cover up the real unlawful reason - that the articulated reason is "pretext."

Here, by demonstrating temporal proximity between his complaint about the derogatory comment and his discharge, the Court found that the Plaintiff established a prima facie case of retaliation under Title VII. The Court also accepted the Defendant's explanation of the legitimate non-retaliatory reason for the Plaintiff's termination. However, the Court found that because the Plaintiff had produced no evidence of pretext, his claim of retaliation must fail.

The Second Circuit explained: "The temporal proximity of events may give rise to an inference of retaliation for the purposes of establishing a prima facie case of retaliation under Title VII, but without more, such temporal proximity is insufficient to satisfy [the plaintiff's] burden to bring forward some evidence of pretext. Indeed, a plaintiff must come forward with some evidence of pretext in order to raise a triable issue of fact. In this case, [the plaintiff] produced no evidence other than temporal proximity in support of his charge that the proffered reason for his discharge was pretextual. Additionally, [the plaintiff] concedes that he omitted certain employment history from his application to work [for the defendant], and has not disputed the [the defendant's] assertion that this omission was grounds for termination under [the defendant's] employment policies."

Although this decision was favorable to employers, we believe it is always smart for employers to consult with a New York City employment attorney before terminating or disciplining an employee who has recently complained.

New York courts "will not enforce a non-competition provision in an employment agreement where the former employee was involuntarily terminated." SIFCO Indus., Inc. v. Advanced Plating Techs., Inc. (S.D.N.Y. 1994).

This is because "[a]n essential aspect [of enforceable restraints on employee mobility] is the employer's continued willingness to employ the party covenanting not to compete." Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1979). "Enforcing a noncompetition provision when the employee has been discharged without cause would be 'unconscionable' because it would destroy the mutuality of obligation on which a covenant not to compete is based. This rationale applies with equal force to covenants not to solicit a former employer's clients and employees; solicitation is simply a form of competition." Arakelian v. Omnicare, Inc. (S.D.N.Y. 2010)(internal citations omitted).

If you have any questions concerning the enforceability of your non-compete agreement, it's always smart to consult with a New York non-compete attorney.

What happens when your employment agreement contains language that is vague or ambiguous?

It is well settled law in New York that an agreement which contains ambiguous language must be construed most strongly against the party who prepared it and favorably to the party which had no voice in its preparation. See Computer Associates Intern., Inc. v. U.S. Balloon Mfg. Co., Inc. (2nd Dept. 2004); see also William A. White/Tishman East, Inc. v. Banko (1st Dept. 1991) ("any ambiguit[y] in an agreement [is] to be interpreted 'most strongly against the draftsman' as long as the particular interpretation would not lead to an absurd result..."); Jacobson v. Sassower (1985) ("[I]n cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it, and favorably to a party who had no voice in the selection of its language...").

New York court have held that a contract is unambiguous only if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the agreement itself, and concerning which there is no reasonable basis for a difference of opinion.

This rule makes perfect sense, as the party that drafts the employment agreement (almost always the employer) possesses more bargaining power than the employee, has the ability to exert influence over the employee, and thus has a distinct advantage over the employee.

Before signing any employment agreement, we always recommend that employees contact a New York employment agreement attorney to review the contract and ensure that the employee understands the terms of the agreement and the ramifications of signing it.

On January 1, 2011, the New York State Hospitality Industry Wage Order ("Wage Order") went into effect. It makes substantial changes to the rules governing payment of wages to employees in the hospitality industry. Here are some of the more important changes:

Hourly Wage Rates Required

The Wage Order expressly requires hourly rates of pay for all non-exempt employees, except for commissioned salespersons, and disallows a daily, weekly, salary, piece rate or other non-hourly rate.

Minimum Pay Rates

The current minimum wage in New York is $7.25 per hour. The Wage Order alters the calculation of this minimum wage for workers in the hospitality industry by increasing the minimum cash wage and decreasing the amount of the permissible tip credit. For example, it increases the minimum hourly wage rate for tipped food-service employees from $4.65 to $5.00, and thereby reducing the tip credit wage to $2.25/hour.

Tip Pooling and Sharing

The Wage Order also drastically changes the treatment of "tip sharing" and "tip pooling," allowing mandatory tip pooling for the first time. Pursuant to the Wage Order, employees eligible to receive shared tips or distributions from a tip pool must perform, or assist in performing, personal service to patrons as a principal and regular part of their duties.

Employees eligible to receive shared tips or distribution from a tip pool include, but are not limited to, wait staff, counter personnel who serve food to customers, bus persons, bartenders, service bartenders, barbacks, food runners, captains who provide direct food service to customers, and hosts who greet and seat guests. Eligibility is always based on the employee's duties, not the employee's title.

Hospitality employers may not require directly tipped employees to contribute a greater share of their tips to indirectly tipped employees (through tip sharing or tip pooling) than is customary and reasonable.

Gratuities

The Wage Order explicitly requires hospitality employers to distribute to employees the full amount of any house-imposed charges on guest bills that are "purported to be a gratuity." There will now be a rebuttable presumption that any charge made by a customer, in addition to charges for food, beverage, lodging, and other specified materials or services, including but not limited to any charge for "service" or "food service," is a charge purporting to be a gratuity.

Service Charges

The Wage Order provides that in order for an employer to retain a charge for the administration of a banquet, special function, or package deal, the employer must clearly identify the charge as an "administrative" charge and notify the customer in writing that the charge is not a gratuity or tip and that it will not be distributed as a gratuity to the employees who provided services. When imposing service charges, employers have the burden of demonstrating by "clear and convincing evidence" that a reasonable person would not have understood the charge to be a gratuity.

Uniform Maintenance Pay

The Wage Order also contains a new "wash and wear" exemption, making employers in the hospitality industry exempt from having to pay to clean it's employees' uniforms if the employer provides uniforms constructed of "wash and wear" fabrics that can be laundered routinely along with personal garments, does not require ironing, dry cleaning, daily washing, commercial laundering, or other special treatment, and if the number of uniforms provided are consistent with the average number of days per week worked by the employee.

Meal Allowances/Credits

Pursuant to the Wage Order, the meal allowance/credit is increased to $2.50 per meal for all workers.

Tip Credit Card Fees

The Wage Order permits an employer to deduct, from the tip left an employee on a charge card, the amount of credit card processing fees actually incurred on that charge for employee tips on a pro-rata basis.

Notice Policies

Similar to the recent changes to the New York Labor Law, employers in the hospitality industry are required to give each new employee written notice of the employee's regular payday, regular hourly rate, overtime hourly rate, and the tip credit, if any, to be taken from the basic minimum hourly rate. The required notice must also state that extra pay is required if tips are insufficient to bring the employee up to the basic minimum hourly rate.

If you have any questions with respect to any of these new requirements, we recommend speaking with a New York employment attorney as soon as possible.