U.S. - New York
2017.08.25 General Topical Links
2018.05.23 From Law360: "Employee Choice Doctrine — Alive And Well In NY.
[The employee choice] doctrine is judge-made law and precedential in both federal and state courts in New York and elsewhere where approved. It is a recognized exception to the law of restrictive covenants. BDO Seidman v. Hirschberg and Ticor Title Insurance Co. v. Cohen and their progeny simply do not apply. Reasonableness in time, place and space are irrelevant.
The doctrine applies in cases where an executive agrees to accept equity awards or post-employment benefits upon compliance with a post-employment restrictive covenant. It rests on the premise if the executive is given the choice of preserving his rights under his contract by refraining from post-employment competition, or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon the executive’s liberty to earn a living. It assumes an executive who leaves his employer makes an informed choice between either forfeiting his benefits or retaining them by avoiding competitive employment.
An essential element of the doctrine is whether the employee clearly resigned, and the employer's continued willingness to employ the employee. These are questions of fact, sometimes disputed (as in Morris, supra), other times admitted or clear.
2016. NY Noncompete Not Enforced in Involuntary Termination, despite Offer from Successor Employer. In Buchanan Capital Markets, LLC v. DeLucca, 144 A.D.3d 508 (2016), NY's First Department affirmed the denial of a preliminary injunction seeking to enforce non-compete and non-solicitation agreements against four employees whose employment was terminated without cause prior to a corporate merger. Although the employees were given the opportunity to apply to the successor entity, the absence of a guarantee of future employment caused the appellate court to find insufficient continued willingness to employ the employees, thereby resulting in a finding that they suffered an involuntary termination, which under NY law merited the denial of injunctive relief to enforce noncompete covenants.
2015.12.05 Article: Noncompetes Require Real Consideration to be Enforceable- discussing NBTY, Inc. v. Vigliante, 2015 WL 7694865 (Suffolk Cty Sup. Ct., Nov. 24, 2015), by observing that "A New York trial court recently addressed the issue of adequate consideration for a noncompete, finding that now-lapsed stock options were not adequate consideration, nor was continued employment where the agreement stated that the employer maintained the right to terminate the employees at will."
2014.Aug.29 Forfeiture-for-Disloyalty Sustained by Texas Supreme Court (applying NY Choice of Law). There is a crucial difference between non-competition provisions and forfeitures-for competition, and the Supreme Court of Texas highlighted that in ruling against a Texas-based employee who resigned from Exxon Mobil to join a competitor. That employee forfeited about $5.7 million of restricted stock awards due to "detrimental conduct" within the meaning of to the underlying plan and award agreements. The decision highlights the importance of well-grounding the forfeiture in suitable state law. Writing that "Forfeiture provisions conditioned on loyalty . . . do not restrict or prohibit the employee's future employment opportunities," the Supreme Court of Texas declined to apply state non-compete principles and instead applied New York's employee choice doctrine. The court enforced the parties' designation of New York law as controlling partly because the employee had worked in New York for 3 of his 31 years, but seemingly more so because --
2013.Nov.06 Non-compete Claims Dismissed where Termination for Cause
The NY Supreme Court for NY County has dismissed claims brought by a former employer, on the basis of an email terminating his employment without cause. The court cited NY law against enforcing non-competition provisions under such circumstances. Here, the dismissal occurred because the employee would not sign a new employment agreement upon expiration of the current one. SeeGreystone Funding v. Kutner, 11/6/2013.
2012.Oct.25 NY Injunction Standard for Preemptive Action by Former Employee: 2nd Circuit Breaks Ground
In Hyde v. KLS Prof. Advisors, the 2nd Circuit decision begins by explaining: "Our Court has not directly addressed when enforcement of a covenant restricting competition may irreparably injure a former employee." The former employee had alleged irreparable injury from having his three-year restrictive covenant inhibit his ability to find a new job and continue his client relationships. Reversing a district court's grant of injunctive relief, the 2nd Circuit found that monetary damages would suffice to protect employee on the facts presented. Further, the court noted that "these clients did not belong to Hyde. During his employment by KLS, he signed multiple agreements in which he acknowledged that KLS's client base was proprietary and belonged to the firm." The 2nd Circuit's decision expressed reservations about the district court's conclusion "that restrictive covenants are per se unenforceable in New York against an employee who has been terminated without cause."
2012.Sept.09 Asset Purchase and Restrictive Covenants (Assignability). In Milso Industries v. Nazzaro, a Connecticut District Court applied New York to a dispute involving (1) an asset purchase that involved the seller's assignment of employment agreements that did not expressly allow for that, (2) the buyer's hiring of seller's key employees pursuant to offer letters that they did not sign, and (3) trade secret and non-compete issues arising when the key employees broke away to form a competing company. The absence of an assignability clause in the seller's employment agreement created an issue of fact as to whether the seller and its key employees intended to permit assignment when the agreements were originally executed. As a result, the court denied summary judgement.
2012.Mar.6 Aon Enforces Non-Competition and Non-solicitation Covenants via Multi-Layer Approach
In NY County's Sup. Court, Aon succeeded in enforcing post-employment restrictive covenants against a former SVP and his new employer, as a result of what the court described as "their orchestration and participation in a massive raid on the clients and employees" of an Aon division. Aon prevailed both despite an expired employment agreement (with the court enforcing its "survival of covenants" provision), and because its restrictive covenants were also set forth in three different benefit executive incentive plans in which the executive participated. See Aon Risk Services v. Cusack, NY Sup. Ct. (NY Co.), 2/28/2012.
2011.Feb.16 General Non-Compete Rules. The following quotations appear in IBM v. Visentin (2011 U.S. Dist. LEXIS 15342, SDNY, 2/16/2011), in which IBM was denied a preliminary injunction to enforce noncompetition agreement with a former executive who joined Hewlett-Packard:
Why? The following quotations from the District Court's decision in IBM v. Visentin indicate why IBM's injunction was denied:
Conclusion in IBM v. Visentin:
For the reasons set above, Mr. Visentin has demonstrated that this agreement is overbroad and, thus, that it fails the first prong of the BDO Seidman test. Even if that is not so, IBM has not satisfied first prong of the BDO Seidman test because it failed to demonstrate that its prohibitions are needed to protect a "legitimate" interest. (Page 58 of the PDF.)
COMPARE: NON-SOLICITATION RULES
2011.July.7 USI Insurance Services LLC v. Miner, 801 F.Supp.2d 175, 2011 WL 2848139 (S.D.N.Y.). "New York law recognizes the enforceability of nonsolicitation covenants in employment agreements, so long as they are necessary to prevent disclosure of trade secrets or confidential information or where an employee's services are unique *191 or extraordinary. See Reed, Roberts Assocs., 386 N.Y.S.2d at 680, 353 N.E.2d 590."
2011.Apr.28 M&A-related Standard set forth by NY Court of Appeals ("What degree of participation in a new employer's solicitation of a former employer's client by a voluntary seller of that client's good will constitutes improper solicitation?").Bessemer Trust v Branin ( 16 N.Y.3d 549, 949 N.E.2d 462).
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