Non-Compete Attorney Jonathan Cooper Weighs in on Non-Compete Clauses Under New York Law
If you've come to this page, chances are that you are here for one of three (3) reasons:
- Your former employer has sued - or is threatening to sue - over the purported violation of a non-compete clause in your employment agreement;
- You're thinking of leaving your current job - either to start your own business or to work for someone else, but want/need some clarity whether you are barred from doing so by the non-compete clause in your contract; or,
- Your former employee has been poaching your clients and/or customers, and you want to know whether that employee's non-compete agreement is enforceable, and if so, what your legal rights are.
SOME COLD, HARD TRUTHS
- New York's Courts Dislike Non-Compete Agreements. And lest you think that this is some sort of "unofficial" policy, let me disabuse you of that notion; the courts have expressly said that they will look to invalidate these clauses. "Why?" you ask. Because the courts favor a free market economy, where both people and ideas flow and gravitate toward their (hopefully) most profitable ends. And that means allowing someone to change jobs, and to use those skills that were gained and mastered to earn a greater paycheck. On the other hand ...
- The Courts will Protect an Employer's Legitimate Proprietary Interests. While it is true that NY's courts are loathe to enforce a non-compete, there are circumstances where they are obliged to do so, in order to assure a level playing field in the business arena, and disallowing unfair competition or tortious interference by current or former employees or competitors.
WHAT A FORMER EMPLOYER CAN DO IF A NON-COMPETE WAS (ALLEGEDLY) VIOLATED
Regardless of whether you arrive at this topic from the perspective of the outgoing employee or the former employer, it is important to know what the possible and likely options and remedies for each side are. To that end, the former employer (who, in all likelihood would be the plaintiff), has a number of choices, including the following:
- The employer can seek injunctive relief from the court (in legalese, this is known as a "Temporary Restraining Order" or "TRO" for short), barring this former employee from working for a competitor;
- The employer can, under certain circumstances, recover the money he paid the employee if the employee was disloyal on company time;
- The employer can, in limited circumstances, try to recoup the profits that were lost as a result of the former employee's disloyalty; and,
- Where the employment agreement contains such a provision, the employer can seek to recover liquidated damages from the former employee
WHAT A FORMER EMPLOYER (PROBABLY) CAN'T RECOVER
Generally speaking, there are two forms of damages that a former employer will almost certainly not be able to recover from a departing employee:
For additional information on these topics, I urge you to download our Free Guide, "To Compete or Not to Compete: The Definitive Insider's Guide to Non-Competes in New York."
- Unjust Enrichment.
One of the most common claims that companies make against departing employees is that their new employer has unfairly piggy-backed on their work effort and investment, which is referred to as "unjust enrichment." In the non-compete realm, these claims usually fail because, as one appellate court noted, "[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). In other words, the causal chain between the new and fotrmer employer is, from the courts' perspective, too attenuated.
Damages that are Unduly Speculative. At the risk of stating the obvious, unless the former employer can identify specific clients, accounts or damages that they suffered as a direct result of the former employee's (wrongful) actions, the case will go nowhere in a hurry. Courts will afford a short leash to a plaintiff's claims that "it is impossible to tell the full extent of the damages wrought by the defendant's actions." If you are the plaintiff, you have to be prepared to prove your damages with competent evidence.