New York Court Declines to Enforce Non-Compete Clause Against Former Employees

Businesses entrust a considerable amount of information, along with the value represented by that information, to their employees. Employers have an interest in protecting their intellectual property, trade secrets, and other proprietary information. Employment laws in New Jersey and New York allow restrictive covenants in employment contracts that reasonably limit certain activities by former employees. From an employee’s point of view, the overzealous enforcement of restrictive covenants imposes an undue burden on their ability to make a living in their chosen field. Courts often give close scrutiny to employers’ efforts to enforce restrictive covenants. Last summer, a Manhattan federal court refused to enforce several non-compete clauses against a group of former employees in a New York employment dispute. In re Document Technologies Litigation (“DTL”), No. 17-cv-2405, op. (S.D.N.Y., Jul. 6, 2017).

fightOne common type of restrictive covenant used in employment agreements is the “covenant not to compete,” also known as a non-compete clause. An employer may worry that, when an employee leaves their job, they will take the knowledge and contacts they have gained and either go to work for a competitor or start their own competing business. In order to be enforceable, a non-compete clause must have a reasonable duration and a limited geographic scope. A non-compete clause stating that a former employee cannot work for any competing business anywhere in the state of New Jersey for a period of 10 years is unlikely to be enforceable, but one that restricts competition within 10 miles of the employer’s location for six months might be considered reasonable. Other common restrictive covenants include agreements not to solicit the employer’s clients or customers (non-solicitation), and agreements not to disclose certain information learned during an individual’s period of employment (non-disclosure).

The plaintiff in DTL “is a global provider of electronic discovery (‘e-discovery’) services for law firms and corporate legal departments,” with about 7,000 employees. DTL, op. at 2. The defendants include four former employees and the competing company that hired them after they quit their jobs with the plaintiff. The individual defendants signed employment agreements with the plaintiff that included one-year non-compete and non-solicitation clauses and a non-disclosure clause. According to the court’s opinion, the individual defendants had become “dissatisfied with their employment” with the plaintiff as early as 2014. Id. at 3. They resigned from the plaintiff and signed employment agreements with the competing company in January 2017, with the understanding that they would not begin work until the following year, after the non-compete had expired.

In February 2017, the individual defendants began work on a spreadsheet containing names and contact information of their clients at the plaintiff. They planned to meet to discuss sales strategies at the new employer, but a cease and desist letter from the plaintiff prevented this meeting from taking place. The plaintiff filed suit in April 2017 and sought a preliminary injunction enforcing the restrictive covenants.

The court declined to grant the preliminary injunction. It found that none of the individual defendants’ alleged actions violated the restrictive covenants. New York law allows former employees to “prepare to compete during the term of a non-competition provision.” Id. at 17. The plaintiff, according to the court, was attempting to portray “innocuous or otherwise legitimate acts by” the defendants “as part of a conjectural (but unsupported) scheme” to damage its business. Id. at 29.

The employment lawyers at the Resnick Law Group advocate for the rights of employees, former employees, and job applicants in New Jersey and New York. To schedule a confidential consultation to see how we can help you, contact us today online, at 973-781-1204, or at 1.888.863.3423.

More Blog Posts:

New Jersey Judge Rules for Former Employee in Dispute Over Noncompete Clause, The New Jersey Employment Law Firm Blog, April 26, 2018

White House Calls on States to Limit the Scope of Non-Compete Agreements, The New Jersey Employment Law Firm Blog, December 23, 2016

Updated LinkedIn Profile Leads to Claim for Alleged Breach of Non-Compete Agreement, The New Jersey Employment Law Firm Blog, February 27, 2015

Photo credit: hbieser [CC0 1.0], via Pixabay.

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