Time to Revise Employment Restrictive Covenants

Publication Source: New York Law Journal

Creating and maintaining employment restrictive covenants cannot be a static process. Rather, as with many contracts involving various subject matters, lawyers tasked with drafting and implementing the documents are well-advised to stay abreast of the latest case law developments to enhance the intended meaning and enforceability of those contracts.¹

While case law determining whether and to what extent employment restrictive covenants are enforceable is certainly inconsistent and unpredictable, the courts continue to provide instructive pronouncements and observations. Lawyers who ignore such developments do so at their peril. The Fourth Department's recent decision in Brown & Brown v. Johnson, 980 N.Y.S.2d 631 (4th Dept. 2014) provides a font of information regarding the drafting and implementation of employment restrictive covenants. In fact, the decision stands as a stark warning to employers—rethink and revise your restrictive covenant agreements and procedures or your agreements may not be worth the paper they are written on.

Johnson Decision

The facts in Johnson were as typical and commonplace as these cases come. The employer-plaintiff, a public company providing insurance and related services, terminated the defendant employee after four years of employment and then sued the employee and her new employer, seeking to enforce various restrictive covenants. As described by the court, the employment agreement was presented to the employee on the first day of work with a number of other documents that she was required to sign and contained 'the three covenants at issue…a non-solicitation covenant, which prohibited [employee] from soliciting or servicing any client of plaintiffs' New York offices for two years after termination of employment; a confidentiality covenant, which prohibited [employee] from disclosing plaintiffs' confidential information or using it for her own purposes; and a non-inducement covenant, which prohibited [employee] from inducing plaintiffs' New York employees to leave plaintiffs' employment for two years after termination of [employee's] employment.'

Read the full article in the attached PDF.

-----

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.

Endnotes: ¹ . See, e.g., K. Schlosser, 'Grappling with Fiduciary Duties in Enforcing Contracts,' NYLJ, Oct. 27, 2011; K. Schlosser, 'Courts Bolster Release of Fiduciary Duty and Fraud,' Nassau Lawyer, April 16, 2013.

². See, e.g., J. Coleman, 'New York's Bright Line View on Non-Compete Agreements,' NYLJ, April 4, 2005; see also discussion in 4A N.Y. Prac., Com. Litig. in New York State Courts §72:38 (3d ed. 2013).

³. Indeed, the court's reasoning in Johnsonwas recently followed by the federal District Court in Veramark Technologies, Inc. v. Bouk, 14-cv-6094 EAW, NYLJ 1202650165181, at *1 (WDNY, Decided April 2, 2014).

Further duplication without permission is prohibited. All Rights reserved. New York Law Journal (c) 2014 ALM Media Properties, LLC