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Will NY Courts Enforce Noncompetes in the Midst of COVID-19?


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4/29/2020
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As many companies have been forced to make terribly uncomfortable decisions for their economic survival, such as whether to impose across-the-board pay cuts, rotating furloughs, or outright layoffs secondary to a dramatic loss of income resulting from the Coronavirus pandemic, it comes as no surprise that one question that has been asked with increasing frequency - and urgency - is whether the recently terminated employees' restrictive covenants will still be deemed enforceable by the courts.

Why The Answer to This Question Matters

Simply put, regardless of which side of the aisle you're on - employer or (newly) former employee - the enforceability of these clauses will often go to that party's financial lifeblood: 

  • If you're the employee - it goes to whether, or how easily, you can find other gainful employment, and thereby cover your essential bills;
  • If you're the employer -  it goes to whether, or how far, that former employee can go to poach your core clients (or what's left of them).

How New York's Courts Would Likely Handle Such Claims

To the best of my knowledge, there are still no reported decisions from any of New York's courts specifically addressing these questions against the backdrop of the current pandemic. Prior precedent, however, suggests that the answer to this question would likely depend on a number of factors, including the following:

(1)  Before Which New York Court is Your Case Being Brought: As noted in NY Court: Fired Without Cause Doesn't Negate Noncompete, there is a significant dispute between the various appellate courts of New York State as to whether someone who is simply downsized can still be held to their non-compete; some courts say yes, and others strongly disagree. Obviously, if you are the one seeking to bring suit, it behooves you to strongly consider as to whether - or where - to file.

(2)  Is the Former Employee Actually Soliciting Clients, or Just Trying to Find Another Job: The answer to this question is at least as important - if not more important - than the answer to the former question, and the reason for it should be apparent: unless the employee is actively poaching the former employer's clients and hurting their bottom line, it is highly unlikely that any judge would bar that employee from simply attempting to put food on their table.

Other Practical Considerations

At the risk of stating the obvious, a former employer should weigh very carefully whether it is worthwhile and necessary to bring suit against an employee who was let go due to the economic effects of COVID-19. To be blunt, the optics of filing such a suit are sufficiently bad that it will require a strong evidentiary showing of real, imminent harm to their business to overcome the inherent human bias in the employee's favor.

On the other side of the coin, if a newly discharged employee is finding it very difficult to secure a new job due to her non-compete agreement with her former employer (which leaves her in job-searching limbo), she may wish to try to file a declaratory judgment action, asking the Court to rule on the enforceability (or un-enforceability) of her agreement on an expedited basis.

Additionally, and in a parallel vein, many courts - particularly the State courts - are not accepting filings of new claims - or requests for injunctive relief absent emergent circumstances, and that too is not an easy hurdle to clear.

As you may well guess, the procedural obstacles to just getting these cases in front of the court - or selecting the best court for doing so - are particularly challenging in this environment. Therefore, if you fall into one of these categories, I would strongly urge you to contact an attorney that is knowledeable about this subject for guidance - and sooner rather than later. 

 



Category: Non-Compete & Employment Agreements

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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