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When Non-Compete Violations & Unjust Enrichment Claims Don't Mix in New York

When an employee leaves to go work for a competitor in violation of a non-compete agreement, one of the common claims leveled against the competitor (and new employer) is that they have unfairly benefitted from the time, blood, sweat, tears and money the employer invested in this employee. In legalese, this is referred to as "unjust enrichment." (For additional information on this topic, please see "How to Prove an Unjust Enrichment Claim Under New York Law").

 

Unjust enrichment claims are not without limitations, however.  As noted in "How NY Courts Limit Unjust Enrichment Claims," a critical element of this claim is that the relationship between the plaintiff and the defendant isn't "too attenuated." This has important implications in the context of the violation of a non-compete agreements as well.

 

More specifically, since "[T]he mere fact that the plaintiff's activities bestowed a benefit on the defendant is insufficient to establish a cause of action for unjust enrichment," Clark v. Daby, 300 A.D.2d 732 (3d Dep't 2002), this cause of action should be dismissed where the connection between the two companies it unduly attenuated.

 

Following are but a few examples. Barbagallo v. Marcum LLP, 820 F. Supp. 2d 429, 447-48 (E.D.N.Y. 2011) (although defendant received benefits from plaintiff to which it was not entitled after hiring plaintiff's former employee, the benefits were not the result of services plaintiff performed for defendant and connection between plaintiff and defendant was too attenuated to support unjust enrichment claim); Wayne Thomas Salon, Inc. v. Moser, 2010 N.Y. Misc. LEXIS 5015, *12 (Sup. Ct. N.Y. Co. Oct. 12, 2010) (dismissing unjust enrichment claim where defendants reaped benefits, including income from plaintiff's clients, after hiring plaintiff's former employee, because plaintiff did not itself confer any benefit upon defendants which would entitle it to recovery); Zeno Group, Inc. v. Charlotte Wray, 2008 N.Y. Misc. LEXIS 10229, *30 (Sup. Ct. N.Y. Co. Sept. 26, 2008) ("The complaint states that defendants have been unjustly enriched in receiving the benefits of employment and client relationships, 'including that of a special and extraordinary employee who had access to the highly confidential and proprietary information of [plaintiff]…. [T]his argument is ineffective. Defendants presumably paid [employee] for her services, and did work in exchange for payment from clients. Nothing was 'bestowed' upon them.").