Reduction in Pay May Vitiate Non-Compete, Says NY Court
In a fascinating October 21 decision, a New York Federal Court held that reducing an employee's pay may, in some cases, vitiate the employee's non-compete agreement under NY law.
In IDG USA, LLC v. Schupp, et al., a salesman for IDG left to work for a competitor in the Buffalo area, in apparent violation of a non-compete agreement he had signed that barred him from working for a competitor within 50 miles and for a period of one year post-employment. Schupp was required to sign this agreement - or so it appears from the record - in order to obtain a promotion to account executive and receive a $3,000 raise.
Subsequently, Schupp's salary was cut as part of a company-wide salary reduction plan that was placed into effect in an effort to avoid mass layoffs that would have been necessitated by the economic downturn. After Schupp left to work for a competitor - within the 50 mile radius and within a year following his resignation - IDG sued, contending he had violated his non-compete agreement. Schupp countered that the only reason he signed the non-compete agreement (NCA) in the first instance was because he couldn't have gotten the promotion or raise without it, and since IDG later reduced his salary, that action rendered the non-compete unenforceable.
In finding that Schupp's claim could theoretically have merit, the Court stated as follows:
"While there is no indication Schupp would have been terminated had he failed to sign the NCA, these statements, considered in the light most favorable to Schupp, suggest that, had he refused to sign, he may have been denied the raise and promotion. Because Schupp has raised a triable question of fact as to whether his promotion and raise were conditioned on his signing the NCA, such that they could be considered part of the consideration for signing, IDG's motion for summary judgment as to its first and second causes of action is denied."