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 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.