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NY Court Suggests Noncompete May Still Be Valid Even if You're Fired


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1/1/2016
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Donald Trump Says You're FiredAt the end of 2012, the Second Circuit, which is the Federal appeals court for New York, noted that in the case before them of Hyde v. KLS Professional Advisors Group, LLC, they didn't need to decide this issue, but wanted to weigh in on whether an employee can still be held to a non-compete even if she was fired without cause.

In legalese, this is referred to as "dicta," which means it is not binding on anyone, but it certainly gives you a court's view of an issue, and in many instances, other courts will look to it as persuasive authority.

Here's what the court said:

"In the interest of judicial economy, however, we note our reservation about the district court's preliminary interpretation of New York law. Relying on Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 N.Y.2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358 (1979), the district court concluded that restrictive covenants are per se unenforceable in New York against an employee who has been terminated without cause. But in Post, the New York Court of Appeals held only that when an employee was terrminated without cause, the employer could not condition the employee's receipt of previously earned pension funds on compliance with a restrictive covenant. Id. at 89, 421 N.Y.S.2d at 849, 397 N.E.2d 358. We caution the district court against extending Post beyond its holding, when a traditional overbreadth analysis might be more appropriate. See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 392–93, 690 N.Y.S.2d 854, 858–59, 712 N.E.2d 1220 (1999)."

In other words, the Second Circuit said that they do not believe the trial court's reading of Post as inherently invalidating non-competes for employees that were fired without cause was correct.

Even assuming the Second Circuit was correct in its reading of Post (many appellate courts in New York have specifically applied the Post holding as barring the enforcement of noncompetes against employees that were fired without cause), I think the Federal Court is heading down the wrong policy path.

Here's why:

Assuming the employee wasn't fired for trying to steal or poach from the employer, it's unfair to hold an employee to a non-compete agreement if the employer isn't willing to abide by their end of the agreement by continuing to employ and pay the employee.



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