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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: April 7, 2014

Court Addresses Remedies for Violation of Non-Compete, Non-Disclosure and Non-Solicitation Agreements

On March 28, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Admarketplace Inc. v. Salzman, 2014 NY Slip Op. 30813(U), regarding the enforcement of non-compete, non-disclosure and non-solicitation agreements.

In Admarketplace, “plaintiff adMarketplace Inc. (AMP) commenced [an] action to enjoin Salzman, a former employee, from working for VSW, a competitor. Salzman was accused of violating a contractual non-competition agreement, as well as misappropriating trade secrets and other confidential information that he allegedly was using to help VSW poach employees and clients from AMP.” The plaintiff sought an order “(1) compelling VSW to terminate AMP’s former employees; (2) enjoining defendants from using AMP’s confidential information; (3) enjoining defendants from soliciting AMP’s clients and employees; and (4) compensating it for the business AMP lost due to defendants’ unfair competition.” Among the points the court made in deciding the plaintiff’s motion were:

It is well settled that in order to be enforceable, an anticompetitive covenant ancillary to an employment agreement must be reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmtul to the public, and not unreasonably burdensome to the employee. The Court of Appeals has limited the cognizable employer interests under the reasonableness prong to the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary. A restriction on a former employee’s ability to work for a competitor is invalid unless the employee’s services were unique or extraordinary or if the job is considered a learned profession (such as law or accounting).

First, it is clear that the NDA’s prohibition of Salzman and Carney working for a competitor is unenforceable. They work in the pay-per-click online marketing industry, which is not a learned profession, and their services are not unique. The law is well settled that agreements barring such employees from working for competitors are unenforceable.

. . .

As for the prohibition on soliciting former employees, this court recently observed that there is scant case law on the enforceability of non-recruitment clauses. This court, persuaded by the analysis in Renaissance Nutrition and Lazer, upheld a two year non-recruitment clause because such a restriction is inherently more reasonable and less restrictive than non-compete clauses since it does not impact the employee’s ability to procure employment. Here, the duration of the NDA’s non-recruitment clauses is shorter than in OTG. Additionally, AMP has a legitimate interest in the protection of client relationships developed at the employer’s expense. The gravamen of AMP’s allegations is that VSW has been poaching employees from AMP, inducing them to switch companies for greater compensation hoping that bring proprietary information with them. A non-recruitment prohibition directly guts this channel of wrongful competition. This is reasonable and, therefore, enforceable. . . . .

[T]he existence of actual monetary damages here is questionable. Though AMP has been in court to argue three motions in this case, it has yet to identify any actual lost business. Though such proof is not required at this juncture, absent lost business, there is little relief to be had by AMP. As explained to the parties on multiple occasions, no one’s employment will be terminated as a result of this case. For AMP to recover from defendants, it must prove a nexus between the alleged violations of the subject restrictive covenants and revenue generated by defendants using confidential information.

(Internal quotations and citations omitted) (emphasis added).

This decision provides a useful summary of what the courts will (and will not) do in enforcing employment agreements. Significantly, as this decision shows, employment agreements–unlike most other contracts–are not necessarily enforced as written and instead are interpreted and enforced by the courts based on the overlay of law discussed above.

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