How a NY Co. Pushed Too Hard on VP's Non-Compete & Lost Big
As we’ve noted elsewhere, under NY law, courts will be far more reluctant to enforce a non-compete provision than they will enforcing a ban against that former employee from pursuing his old company’s clients.
So what happens when the employer goes too far, and pushes for more than they are entitled to for a non-compete in New York?
Not surprisingly, the results can be rather bad for the employer.
In addition to a company’s client base, New York’s courts are willing to protect material that is legitimately a trade secret, material not generally available to the public. The Courts are unlikely going to protect anything that is unduly vague, such as customer goodwill, without any further explanation by the plaintiff as to why a nonsolicitation provision is insufficient to protect their interest.
Consider the recent New York Federal court case of Veramark Technologies v. Bouk.
In that case, Mr. Bouk was Veramark's highest ranking sales executive, serving as Veramark's "senior-most executive point of contact with key customers and channel partners…." Bouk‘ wasn’t just your average sales guy; his base salary exceeded $150,000 and he also received "substantial commission and bonus compensation, Restricted Stock Awards, stock options and other employee benefits.“ When Bouk tendered his written resignation, he made clear that although he was moving to a competitor, he fully intended to honor his non-solicit. In fact, his new employment was contingent on his honoring the non-solicit provision of his agreement with Veramark.
But that wasn’t good enough for Veramark.
Veramark argued that even if Mr. Bouk refrains from soliciting customers, the mere fact of his employment by a competitor presents a threat to goodwill.
The Court would have none of it, because Veramark couldn’t show that this broad restriction on Mr. Bouk's ability to earn a living was necessary to protect their customer relationships.
And, therefore, In refusing to bar the defendant from taking a new job with a competitor, the court stated as follows:
“[W]here an employer proffers protecting customer goodwill as the legitimate interest it seeks to protect with a restrictive covenant, the covenant must actually protect that interest.
“A broad non-compete that baldly prevents competition will not be enforced, particularly where the employer is already protected by a non-solicitation agreement. This is the standard set forth by the New York Court of Appeals in BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). There, the court explained that a restraint will only be considered reasonable if it is "no greater than is required for the protection of the legitimate interest of the employer…." Id. at 388-89 (emphasis in original).
The takeaway for an employer here is clear:
Don’t be a pig; the courts will be less inclined to enforce your agreements.