Reading Restrictive Covenant Tea Leaves From State's High Court

Publication Source: New York Law Journal

Anyone familiar with the law on employment restrictive covenants knows that it is not particularly easy to predict whether any given restriction will be enforced by the courts. So, when the New York Court of Appeals weighs in on issues concerning restrictive covenants, one is well advised carefully to consider and account for the latest pronouncements of the high court. Reading these important tea leaves may not always enable planning with precision, but ignoring them is ill-advised.

This is why the Court of Appeals' latest such decision, albeit rather brief, is an important read. In Brown & Brown v. Johnson, 25 N.Y.3d 364 (June 11, 2015) the Court of Appeals addressed two issues—(1) whether the courts in New York should enforce a choice of law provision in an employment contract that applied Florida substantive law, which differs markedly from New York law; and (2) whether to allow partial enforcement of a restrictive covenant by 'blue penciling' the agreement, narrowing its scope to a permissible extent. While the court's discussion of the choice of law issue provides a helpful refresher on New York law, the more significant ruling resuscitated the judicial power to rewrite restrictive covenants to make them enforceable even when, as written, they are impermissibly overbroad.

In Brown, the Court of Appeals affirmed the Fourth Department's decision refusing to enforce the choice of law provision because Florida law strongly favors employers in considering whether restrictive covenants are enforceable and to what extent, thereby offending New York's strong public policy requiring a proper balance of the interests of the employee, the employer and the public in general. This affirmance was straightforward and did not represent any meaningful change in the governing law of New York.

More importantly and of potentially greater significance, however, is the Court of Appeals' reversal of the Fourth Department's unduly harsh and unbending refusal to blue pencil the restrictive covenant at issue.

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission from the July 24, 2015 online issue of New York Law Journal. © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 - [email protected].