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Why Checking the Law is Crucial When it Comes to Noncompetes


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1/1/2016
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Judge Reading Non-Compete in NY

A dear friend and colleague of mine forwarded me a decision that was rendered by a New York County judge in the non-compete case of Comgroup Holding LLC v. Greenbaum wherein she held that the plaintiff/former employer was entitled to an order barring (or, in legalese, "enjoining") the defendant from soliciting their clients - even though there was evidence that she had been fired from her job without cause.

In support of her conclusion, the Court stated as follows:

"While the parties dispute whether her termination was for cause, the Court need not reach this issue, as there is no per se rule against the enforcement of restrictive covenants where a termination is without cause. Rather, the case law cited by defendant holds that where an employer's termination of an employee is without cause, the employer may not condition the employee's receipt of post-employment benefits upon compliance with a restrictive covenant." (Citations omitted)

Here's an interesting tidbit: one of the primary cases cited by the court in support of this conclusion holds exactly the opposite way, stating:

"However, the defendants are correct that the restrictive covenant and the reimbursement clauses were unenforceable ... because the plaintiff terminated [defendant]'s employment without cause, the "mutuality of obligation" on which the covenant depended, and which enabled the plaintiff as employer to impose a forfeiture, ceased to exist, and, accordingly, as to [defendant], these provisions were unenforceable (see Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 89 [1979]; Borne Chem. Co. v Dictrow, 85 AD2d 646, 649 [1981])."

More importantly, though, the takeaway for employees is clear: 

There are a number of courts in New York that are declining to read the Court of Appeals' holding in Post to mean that termiantion without cause inhrerently invalidates a noncompete. Even if the trial court is wrong in applying the law in this way, employees should be aware that it may prove rather expensive to try to appeal and reverse this ruling.



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