Maybe it's the heat, or maybe since it's Father's Day I'm in the mood to look back and reminisce, but whatever the case, now seems as good of a time as any to go back to the basics of New York noncompete agreement law, the 1999 Court of Appeals decision of BDO Seidman v. Hirshberg, 93 N.Y.2d 382.
Here are some of the salient points from the decision, which is routinely referred to as an authority by New York courts when deciding disputes concerning noncompete agreements--also known as covenants not to compete and restrictive covenants.
Hey, a refresher is always a good thing.
The court set forth the basic black-letter law that noncompete agreements must be viewed with a reasonableness standard that applies a three-prong test. More to the point, "[a] restraint is reasonable only if it (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public."
As is evident, this is a vague standard that gives considerable discretion to the court. But the court didn't stop there, continuing on to set forth in more detail what reasonableness is in this context. A covenant will only be enforced if "it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee."
Still kind of a vague standard, but at least it has a little more in the way of definition to it. It does, after all, address the issues of geography and time. But wait, there's more...
The first prong above that mentions the employer's legitimate interest. What does that mean, exactly? The court defines it as being limited to protection against misappropriation of trade secrets or confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary. Also, more leeway will be given during reviews of covenants between professionals, whose services are more likely considered to be unique.
The court went on to say that if the employee does not use unfair means to compete against the former employer, the employer does not have a legitimate interest in curtailing the activity of the employee. However, "[p]rotection of customer relationships the employee acquired in the course of employment may indeed be a legitimate interest." Thus, a noncompete agreement may restrict an employee from taking clients he formed relationships with through his former employer, but not may not keep him from competing against the employer for other clients.To be clear, though, a noncompete agreement may not extend to clients whom the employee was responsible all on his own for bringing to the firm, independent of company contacts and resources. Thus, what is a legitimate interest has been defined.
The decision also affirmed that, unless there was real overreaching or coercion by the employer, courts may sever and partially enforce noncompete agreements that are overly broad.
So there you have it .... my case brief for the BDO Seidman case. It's not the most clearly written decision you'll ever read, but that's beside the point, since no matter what the prose style and structure of the opinion, it is one that continually is referred to in disputes concering noncompete agreements and so must be understood by attorneys practicing in this area.