New York Employment Lawyer Blog

On November 3, 2011, in Int'l Business Machines Corp. v. Visentin, the Second Circuit Court of Appeals affirmed a Southern District of New York decision denying IBM's application for a preliminary injunction to enforce a non-compete agreement and prevent a former employee from working for a competitor.

Visentin was employed by IBM in numerous roles over twenty-six (26) years. From 2007 through the end of his employment, he was General Manager of IBM's Integrated Technology Services ("ITS") business, where he was responsible for the development and sale of ITS products and services throughout North America.

On January 19, 2011, Visentin announced that he was leaving IBM to work for a competitor, Hewlett-Packard. However, Visentin had previously signed a non-compete agreement with IBM, which provided that he would not, during his employment and for a period of twelve (12) months following the termination of his employment, become employed by any competitor of IBM in any geographic area in the world for which Visentin had job responsibilities during his last twelve (12) months of employment with IBM.

Due to this agreement, Visentin even offered to remain at IBM for a reasonable transition period, but IBM declined that offer. Hewlett-Packard also took steps to avoid any overlap in responsibilities between Visentin's position at IBM and his new position, by insulating Visentin from former IBM customers, restricting his work to segments of its business for which he had not been responsible at IBM, and limiting him to working with established Hewlett-Packard clients.

As you might have guessed, IBM nonetheless instantly brought suit against Visentin alleging breach of the non-compete agreement and misappropriation of trade secrets, and moved for a preliminary injunction.

The Southern District of New York held that the non-competition agreement was overly broad and refused to grant IBM's request for a preliminary injunction. Reiterating the standard under New York law that "properly scoped non-competition agreements are enforceable to protect an employer's legitimate interests so long as they pose no undue hardship on the employee and do not militate against public policy," the Court recognized that while IBM's legitimate business interests were the protection of its confidential information and trade secrets, the agreement prohibited competition in areas where IBM had no legitimate business interests.

Thus, the Court held that IBM had not satisfied its burden of demonstrating that any of its confidential information or trade secrets would be disclosed or relied upon by Visentin as a result of his employment with Hewlett-Packard. According to the Court, Visentin was not a technological expert and was not on the front lines dealing with clients, and therefore had little knowledge of how deals were priced. The Court was also influenced by the fact that there was no evidence of prior wrongdoing or disclosure of confidential information by Visentin. As a result, the Court held that IBM was unable to establish that the non-competition agreement was enforceable under New York law.

Before signing a non-compete agreement, we always recommend that employees have a New York Non-Compete attorney review the agreement to ensure that the employee understands the terms of the agreement and the ramifications of signing it. Lastly, if you already signed a non-compete agreement and now have questions concerning the enforceability of your agreement, it's also smart to consult with a New York employment attorney.

In Eyes of the World, Inc. v. Boci, a New York court recently held that a former employee's restrictive covenant (non-compete agreement) prohibiting her from providing services to any client of her former employer was overly broad and, thus, unenforceable.

In this case, Defendant Boci worked for Plaintiff Eyes of the World, Inc., where she performed hair removal services. As an employee, Boci had signed a non-compete agreement which stated, "For a period of one (1) year following termination of your employment for any reason, you agree not to provide Salon Services in New York City to any client of Eyes of the World, Inc. for whom you provided services during the last twelve (12) months of your employment with Eyes of the World, Inc."

When Defendant Boci voluntarily resigned from her position, and began working for a competitor, Plaintiff sought to enforce the non-compete agreement, alleging that Boci performed services for eighty-six (86) former clients of Plaintiff at Boci's new place of employment within one (1) year of her termination.

The Court stated that, "In order to be enforceable, an anticompetitive covenant ancillary to an employment agreement must be reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee. ... Restrictive covenants are generally frowned upon by courts due to public policy considerations that seek to prevent restrictions on a person's livelihood. ... Consequently these covenants will be enforced only if reasonably limited temporally and geographically and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customer lists, or if the employee's services are unique or extraordinary."

Here, while Plaintiff attempted to establish that the services provided by Boci were unique and extraordinary, the Court rejected this argument, and found that Boci's skills were not unique or extraordinary, and furthermore, that it appeared clients "opted to follow Boci based on their needs and her ability." In addition, the Court found that there was no evidence that Boci had access to trade secrets, client lists, or proprietary information, ultimately holding that the non-compete clause was "unreasonable in its limitation, burdensome to the employee, and not necessary to protect the employer's legitimate interests."

The Court therefore struck down the restrictive covenant as overly broad and unreasonable, and dismissed Plaintiff's complaint.

Before signing a non-compete agreement, we always recommend that employees have a New York Non-Compete attorney review the agreement to ensure that the employee understands the terms of the agreement and the ramifications of signing it. Lastly, if you already signed a non-compete agreement and now have questions concerning the enforceability of your agreement, it's also smart to consult with a New York employment attorney.

On July 11, 2011, in Ridinger v. Dow Jones & Co Inc., the Second Circuit ruled that a 62-year-old employee's age discrimination claim brought under the Age Discrimination in Employment Act ("ADEA") was barred due to a valid separation agreement that the employee had signed.

In his separation agreement, the employee agreed to waive and release all claims up to the point of his termination, explicitly including those claims for discrimination under the ADEA. Despite signing it and accepting all the benefits of the severance package, the employee nonetheless sued for discrimination, arguing that the release was invalid because it violated the Older Workers Benefit Protection Act ("OWBPA"), which requires that an employee waive his or her ADEA claim in a "knowing and voluntary" way and that a separation agreement be "written in a manner calculated to be understood."

The employee also argued that the waiver provision violated Equal Employment Opportunity Commission ("EEOC") regulations, which require a waiver to be drafted in plain language, not using "technical jargon" or "long, complex sentences," and "geared to the level of understanding" of the employee, taking into consideration the typical employee's education level.

The Second Circuit rejected the employee's arguments and held that the separation agreement was in fact enforceable, as it was written by the employer in a "manner calculated to be understood" by the relevant employees. Comparing the language in this agreement to those found in cases in which the court invalidated a company's separation agreement, the Court found that the terms in this separation agreement were sufficiently clear and complied with the OWBPA.

This decision should serve as a reminder to all employers of the importance of drafting separation agreements in a clear manner using plain language. In addition, if you signed a severance or separation agreement as an employee, it's always smart to have a New York Severance Agreement attorney review the agreement, especially if it includes provisions related to age discrimination.

On June 1, 2011, in Peconic Surgical Group, P.C. v. Cervone, the New York State Supreme Court, Suffolk County, granted a medical group's motion for a preliminary injunction and temporary restraining order enforcing a restrictive covenant (non-compete clause) contained in two (2) physicians' employment agreements.

The plaintiff, Peconic Surgical Group, P.C. ("PSG"), is a medical group consisting of surgeons. Before joining PSG, the defendant surgeons signed employment agreements with PSG, in which they agreed that, for a period of three (3) years after leaving PSG, they would not engage in the practice of surgery within fifteen (15) miles of PSG's office.

After both defendant surgeons resigned from their positions, PSG brought suit alleging that the surgeons violated the restrictive covenant by opening an office approximately three (3) miles from PSG's office.

As the court noted, when enforcing "restrictive covenants among professionals, great weight is given to the interests of the employer in restricting competition within a confined geographic area. The rationale therefor is that professionals are deemed to provide unique or extraordinary services. In fact, the interests of the employer have enjoyed solicitous consideration by the courts when the restrictive covenant is in an employment agreement between doctors."

Using this rationale, the court held that the three-year, fifteen-mile restriction on the surgeons' practice was reasonable in time, geographic area, and scope. Also, because the geographic area in question was served by several hospitals, the court found that that enforcement of the restrictive covenant was not harmful to the public.

The court then stated that PSG "has demonstrated a strong probability of irreparable harm if the preliminary injunction were denied. Not only would PSG lose the investment it made in hiring the defendants and establishing the practice for which they were hired, a loss that is not readily compensated by money damages, it would also lose patients and revenues to [defendants'] new practice, as well as the goodwill associated with the practice, which is difficult to quantify."

This decision reinforces the need to weigh the availability of professional services in a given area when determining the enforceability of a non-compete agreement.

Before signing a non-compete agreement, we always recommend that employees have a New York non-compete attorney review the agreement to ensure that the employee understands the terms of the agreement and the ramifications of signing it.

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.

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.

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.

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.

Although an employee handbook provision disclaiming the handbook as a contract would normally prevent the handbook from being interpreted as an enforceable contract, a separate signed employment agreement incorporating the terms of the handbook will make those terms enforceable.

In Currier McCabe & Assoc. v. Maher (July 15, 2010), the employee signed an employment agreement in which he acknowledged that he had read the handbook and agreed to its terms. However, the handbook included a disclaimer providing that the "[p]olicies set forth in this handbook are not intended to create a contract, nor are they to be construed to constitute contractual obligations of any kind or a contract of employment between [the employer] and any of its employees." As the Court acknowledged, "[the disclaimer's] stated purpose [was] to prevent the policies, in and of themselves, from being construed as an implied employment contract."

The handbook also included a section in which the employer agreed to pay for educational and training courses for its employees, but that first year employees who left their positions within one year of obtaining such training were required to repay the educational expenses paid by the employer.

The employee in this case took graduate classes, and pursuant to the terms in the handbook, the employer paid his tuition. The employee then resigned from his position during his first year of employment and within two (2) months after completing his degree program. He thereafter refused to reimburse the employer for his tuition and related expenses, causing the employer to sue for breach of contract.

The employee argued that the disclaimer prevented any of the handbook's terms, including the tuition reimbursement provision, from being contractually binding. The employer argued that the employee's express agreement to the terms and conditions of the handbook rendered the disclaimer legally irrelevant.

The Court found that the written agreement set "forth the terms of [the employee's] employment and, regarding the handbook, provides only that [the employee] also agrees to its terms and conditions. The handbook's initial provision stating that its 'policies' are not intended to create a contract is merely a disclaimer." The employee's execution of a separate contract in which he expressly agreed to the handbook's terms created his contractual obligations. "[The employee's] express agreement to the handbook's terms and conditions reasonably implies that the parties did not intend the disclaimer to make this agreement ineffective but, rather, intended the handbook's substantive terms and conditions -- including the tuition reimbursement provision -- to be contractually binding."

In broad terms, non-compete agreements are legally permissible in order to protect the employer from unfair competition from its former employees. The reasonableness of a non-competition covenant, non-solicitation covenant, or any other type of restrictive covenant, whether standing alone or as part of an overall employment agreement, will be judged on more than just its duration, scope, and geographic restrictions. All such clauses must be consistent with the overriding public policy that restrictive covenants should not unnecessarily restrict free trade or the ability of an employee to practice his or her particular trade, and its effect upon the general public.

As a threshold matter, an employer must establish that it has a legitimate business interest worthy of protection. In order to restrict a former employee from competing for its business, an employer must have something that it wants to keep away from its rivals that the court deems to be a bona-fide business interest of such worth or importance that it deserves protection, at least for a period of time. Matters that are generally known within the relative business community, or can be discovered easily through some investigation are not protectable interests. In cases where the employer's interests do not rise to the level of a proprietary interest deserving of judicial protection, a court will conclude that a restrictive agreement merely stifles competition and therefore is unenforceable.

Thus, if an employer intends to prevent a former employee from acquiring employment in the same field, it is the employer's burden to establish the legitimate business interest that it believes should be protected. Moreover, even if the company is able to meet this burden, it must also illustrate how and why employment with another company in the industry would be detrimental to its business interest.

In the event the employer satisfies the aforementioned burden, the second factor that the courts will consider with regard to the enforceability of the agreement is the reasonableness of the geographic and temporal restrictions to be imposed upon the employee. In this regard, the courts have generally found agreements unenforceable if the restrictions pose an undue hardship on the former employee.

However, it should be noted that courts have been reluctant to declare an otherwise valid non-compete clause unenforceable simply because the parties neglected to include a geographic or temporal restriction. If the geographic and temporal restrictions in a non-compete agreement exceed the boundaries necessary to protect the employer, a court may modify the agreement by reducing those restrictions to make the agreement reasonable.

Furthermore, the reason for ending the employment relationship will weigh very heavily in the court's decision. If an employee is terminated though no fault of its own, courts are much more likely to view the enforcement of the agreement as an "undue burden," since the employee did not, by its conduct, contribute to the termination. Courts are also inclined to find it quite significant if the employer had provided a safety net in the form of post-employment compensation (severance pay) for a period equal to that of the non-compete.

Lastly, New York courts have also carved out the "employee choice doctrine" for situations where an employee signs a restrictive covenant that is tied to his/her post-employment benefits and then voluntarily quits his/her job. Under this doctrine, without any regard for the reasonableness of the restrictions, an employee who chooses to voluntarily resign is given the choice of either preserving his/her right to post-employment compensation by refraining from engaging in competitive employment, or forfeiting that right by choosing to compete with a former employer.

To confirm enforceability, we recommend that all employers consult with a New York employment attorney before drafting non-compete agreements for their employees.