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New York BusiNess LitigatioN 2013 269

Chapter 6 Restrictive Covenants Under New York LawM. Alexander Bowie, II, Day Pitney LLP1

6-1 INTRODUCTIONAbsent an agreement to the contrary, New York law does not

prohibit former employees from engaging in competition with a former employer, so long as the former employee does not use improper means, such as misappropriating confidential information or revealing trade secrets.2 As a result, many employers include clauses in employment agreements restricting a former employee’s ability to compete with the employer after the end of the employment relationship. This chapter will address how the New York courts treat restrictive covenants in agreements between employers and employees.

1. The author wishes to thank Michael A. Weiss and Chelsea E. Mullarney for their invaluable assistance in preparing this chapter.

2. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 592-93 (N.Y. 1976); see also Innoviant Pharmacy, Inc. v. Morganstern, 390 F. Supp. 2d 179, 194 (N.D.N.Y. 2005) (“Absent a written agreement precluding or restricting such activities, New York law does not prohibit an employee from engaging in head to head competition with a former employer, provided that the employee does not unfairly compete such as through the use of proprietary information misappropriated from the former employer.”); Pearlgreen Corp. v. Yau Chi Chu, 778 N.Y.S.2d 516, 517 (N.Y. App. Div. 2004) (“In the absence of a restrictive covenant, an employee may freely compete with a former employer ‘unless trade secrets are involved or fraudulent methods are employed.’”) (internal citations omitted).

NY_Business_Litigation_Fullbook.indb 269 12/1/12 6:44:51 PM

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Chapter 6 Restrictive Covenants Under New York Law

270 New York BusiNess LitigatioN 2013

6-1:1 DefinitionRestrictive covenants are express agreements or provisions

between an employer and an employee under which the employee is precluded, often for a specified period of time within a specific geographic area, from certain forms of competition with the employer following the end of the employment relationship.3

New York statutory law does not restrict a former employee’s right to compete with a former employer or a former employer’s right to restrict that competition by contract. As a result, the law governing the enforceability of restrictive covenants has been developed by the courts.4

New York courts disfavor restrictive covenants that prevent a former employee from pursuing a similar profession after the end of the employment relationship,5 although they have recognized that there are situations in which enforcement of such covenants is essential.6 Therefore, courts undertake a fact intensive, “reasonableness” analysis to determine whether the covenant should be enforced.7 To be enforceable, the restrictions must be necessary to protect the former employer from unfair competition by the former employee.8 If the former employer can show that the restriction is necessary to protect a legitimate interest, then the

3. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977).

4. See, e.g., BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); American Broad. Cos. v. Wolf, 420 N.E.2d 363 (N.Y. 1981); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4 (N.Y. 1977); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590 (N.Y. 1976); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245 (N.Y. 1963).

5. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (stating that restrictive covenants are disfavored and should not be enforced where they interfere with a former employee’s right to use the skills and techniques acquired while working for the former employer); Eastman Kodak Co. v. Carmosino, 909 N.Y.S.2d 247, 249 (N.Y. App. Div. 2010); Windshield Installation Network, Inc. v. Goudreau, 654 N.Y.S.2d 442, 442 (N.Y. App. Div. 1997) (“It is well settled that ‘restrictive covenants which tend to prevent an employee from pursuing a similar vocation after termination of employment are disfavored by the law.’”) (internal citations omitted).

6. Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247-48 (N.Y. 1963) (“At one time, a covenant not to compete, basically an agreement in restraint of trade, was regarded with high disfavor by the courts and denounced as being ‘against the benefit of the commonwealth’. It later became evident, however, that there were situations in which it was not only desirable but essential that such covenants not to compete be enforced.”) (internal citations omitted); Tech. for Measurement, Inc. v. Briggs, 737 N.Y.S.2d 197, 199 (N.Y. App. Div. 2002).

7. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1222-23 (N.Y. 1999); see infra § 6-2.8. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Eastman Kodak Co. v.

Carmosino, 909 N.Y.S.2d 247, 249 (N.Y. App. Div. 2010); Zinter Handling, Inc. v. Britton, 847 N.Y.S.2d 271, 274 (N.Y. App. Div. 2007).


INTRODUCTION 6-1


restriction will typically be enforced only to the extent that it is reasonable in scope (geographic, temporal, and type of competitive activity).9

6-1:2 Types of Restrictive CovenantsEmployment agreements may contain one or more of the types

of covenants discussed in the sections below.

6-1:2.1 Noncompete CovenantsA noncompete covenant prevents a former employee from

competing with a former employer directly or through subsequent employment with a competitor of the former employer.10 Generally, these types of covenants will be enforceable if they are reasonable in duration and geographic scope and necessary to protect a legitimate interest of the former employer.11 The definition of “competition” has been interpreted broadly, and may include such activities as attending industry events.12

New York courts have found that a former employer may waive the enforcement of a restrictive covenant where the former employer knowingly aids the former employee in obtaining a position with a competitor.13

6-1:2.2 Nondisclosure CovenantsA nondisclosure covenant prevents a former employee from

revealing information he or she obtained in the course of his or her employment.14 A New York court has enforced “reasonable restrictions related to the disclosure of trade secrets or confidential

9. Rochester Tel. Mobile Commc’ns, Inc. v. Auto Sound Sys., Inc., 583 N.Y.S.2d 327, 328 (N.Y. App. Div. 1992); see infra § 6-3.

10. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1222-24 (N.Y. 1999) (generally discussing restrictive covenants in New York); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (same).

11. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1222-24 (N.Y. 1999) (discussing the requirements for enforcement of a restrictive covenant); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (same).

12. World Auto Parts, Inc. v. Labenski, 629 N.Y.S.2d 896 (N.Y. App. Div. 1995).13. See e.g., Empire Fin. Servs., Inc. v. Bellantoni, 861 N.Y.S.2d 898, 900 (N.Y. App. Div.

2008) (“[P]laintiffs waived their right to enforce the restrictive covenants by knowingly aiding and, indeed, encouraging the individual defendants to obtain competing employment”); Int’l Shared Servs., Inc. v. McCoy, 686 N.Y.S.2d 828, 829 (N.Y. App. Div. 1999) (same).

14. Perfect Fit Glove Co. v. Post, 635 N.Y.S. 2d 917, 918 (N.Y. App. Div. 1995).




customer information.”15 Additionally, for such a provision to be enforced, the data or information the former employer seeks to protect must be confidential and unavailable through public sources.16

6-1:2.3 Nonsolicitation Covenants

6-1:2.3a Nonsolicitation of CustomersA nonsolicitation covenant prohibits a former employee from

soliciting business from customers of the former employer for a set period after the end of the employment relationship.17 Such covenants will usually be enforced if they are reasonable in scope and the names of the customers are not easily ascertainable.18

A trend in New York cases suggests that the greater the time, effort or resources expended by an employer in developing customer lists and relationships, the more likely the court will find a legitimate interest in protecting those customer relationships.19 Whether the former employer has a legitimate interest in protecting itself from competition by a former employee (hired by a competitor) who developed client relationships at the former employer’s expense is a fact-dependent determination.20

6-1:2.3b Nonsolicitation of Employees of Former EmployerFew courts in New York have reviewed covenants barring

a former employee from soliciting or recruiting employees of

15. Perfect Fit Glove Co. v. Post, 635 N.Y.S.2d 917, 917-18 (N.Y. App. Div. 1995).16. See infra § 6-3:1-1a; see also Comcast Sound Commc’ns, Inc. v. Hoeltke, 572 N.Y.S.2d

189 (N.Y. App. Div. 1991) (a nondisclosure covenant is unenforceable where a list of customer names is readily ascertainable from sources available to the general public).

17. Kelly v. Evolution Mkts., Inc., 626 F. Supp. 2d 364, 373 (S.D.N.Y. 2009). 18. Kelly v. Evolution Mkts., Inc., 626 F. Supp. 2d 364, 373 (S.D.N.Y. 2009); Leo Silfen, Inc. v.

Cream, 278 N.E.2d 636, 639-40 (N.Y. 1972).19. Marsh USA Inc. v. Karasaki, No. 08 Civ. 4195, 2008 U.S. Dist. LExIS 90986, at *50

(S.D.N.Y. Oct. 30, 2008) (noting that an employer has a legitimate interest in protecting client relationships cultivated by the former employee with resources invested by the former employer); BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224-25 (N.Y. 1999) (explaining “[t]he employer has a legitimate interest in preventing former employees from exploiting or appropriating the goodwill of a client or customer, which had been created and maintained at the employer’s expense, to the employer’s competitive detriment.”); Town & Country House & Home Serv., Inc. v. Newbery, 147 N.E.2d 724, 726 (N.Y. 1958).

20. Renaissance Nutrition, Inc. v. Jarrett, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490, at *9-10 (W.D.N.Y. Jan. 7, 2012).


INTRODUCTION 6-1


the former employer.21 Courts that have considered such non-recruitment covenants, tend to analyze them as a species of covenants not to compete.22 As a result, the reasonableness test articulated by the Court of Appeals in BDO Seidman v. Hirshberg23 is used to determine whether such a nonrecruitment covenant will be enforced.24

When applying that analysis, one court determined that a former employer’s interest in retaining at-will employees is not a legitimate interest per se for the purposes of enforcing a nonsolicitation or nonrecruitment covenant.25 However, the same court went on to hold that when “dishonest” means are used by the former employee to solicit at-will employees of the former employer, the covenant may be enforced.26

Where the current employee solicited by the former employee does not possess confidential information, was not in a position to acquire (or did not acquire) trade secrets, and is not a unique or valuable employee, there may be no legitimate interest for the employer to protect.27 If the former employee’s new employer is not a competitor of the former employer, the nonrecruitment covenant is even less likely to be enforced.28

One court has, however, determined that in general, nonrecruitment clauses are “inherently more reasonable and less restrictive” than noncompete clauses, because the public policy

21. Renaissance Nutrition, Inc. v. Jarrett, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490, at *7 (W.D.N.Y. Jan. 7, 2012) (noting “[t]here appears to be no New York Court of Appeals case discussing the applicable standard for non-recruitment covenants. In fact, both parties can point to only one New York case discussing the standard, Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834 (N.Y. Sup. Ct. 2005)”).

22. Renaissance Nutrition, Inc. v. Jarrett, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490, at *7-8 (W.D.N.Y. Jan. 7, 2012); Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 837-38 (N.Y. Sup. Ct. 2005) (“Accordingly, a covenant not to solicit former coemployees is a species, albeit a limited one, of a covenant not to compete in the broad sense”).

23. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999).24. Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 837-38 (N.Y. Sup. Ct. 2005) (applying BDO

Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) to a nonrecruitment covenant); see also Renaissance Nutrition, Inc. v. Jarrett, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490 (W.D.N.Y. Jan. 7, 2012) (stating that post employment covenants, even non-recruitment covenants, are “subject to the ‘overriding requirement of reasonableness’”) (internal citations omitted).

25. Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 839 (N.Y. Sup. Ct. 2005).26. Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 839 (N.Y. Sup. Ct. 2005).27. Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 839 (N.Y. Sup. Ct. 2005) (highlighting New

York cases regarding the legitimate interests of a former employer).28. Lazer Inc. v. Kesselring, 823 N.Y.S.2d 834, 839 (N.Y. Sup. Ct. 2005).




concern of restricting a former employee’s livelihood is not implicated in a nonrecruitment covenant.29

6-1:2.4 Restrictions Placed on the Seller of a BusinessA business purchase transaction that includes the good will

of the business may include a reasonable restriction ancillary to the sale prohibiting the previous owner from competing with the new owner, which goes beyond the so-called “implied covenant” in all such transactions permanently prohibiting the seller from soliciting the customers of the sold business.30 Agreements restricting the former owner from competing with the new owner are enforced to the extent they are reasonable and do not form a de facto monopoly.31 Courts have found that purchasers of a business have a legitimate interest in protecting the value of the good will they have purchased.32 The standard of reasonableness used when analyzing such restrictive covenants is less strict than the test governing agreements between employees and employers.33 The focus in evaluating the reasonableness of a noncompete agreement

29. Renaissance Nutrition, Inc. v. Jarrett, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490, at *15 (W.D.N.Y. Jan. 7, 2012).

30. See e.g. Mohawk Maint. Co. v. Kessler, 419 N.E.2d 324, 328 (N.Y. 1981) (Explaining “the important distinction between the duty to refrain from soliciting former customers, which arises upon the sale of the ‘good will’ of an established business, and separate duty to refrain from competing with the purchaser, which may only arise out of an express agreement” and which must be reasonable.); Manhattan Real Estate Equities Grp. LLC v. Pine Equity, N.Y., Inc., 791 N.Y.S.2d 418 (N.Y. App. Div. 2005); Mammolito v. McHugh, 779 N.Y.S.2d 533, 534 (N.Y. App. Div. 2004).

31. Mammolito v. McHugh, 779 N.Y.S.2d 533, 534 (N.Y. App. Div. 2004) (“An agreement restricting the right of a seller of a commercial enterprise to compete with the purchaser is enforceable depending on its duration and scope.”); Larido Corp. v. Crusader Mfg. Co., 155 N.Y.S.2d 715 (N.Y. Sup. Ct. 1956).

32. Mohawk Maint. Co. v. Kessler, 419 N.E.2d 324, 328-29, n. 6 (N.Y. 1981) (“When the intangible asset of good will is sold along with the tangible assets of a business, the purchaser acquires the right to expect that the firm’s established customers will continue to patronize the business … The purchaser of a business may protect himself at least against the possibility that some of his customers will voluntarily follow the seller by negotiating a reasonable express covenant restricting the seller’s freedom to engage in a competing business.”); Weiser LLP v. Coopersmith, 859 N.Y.S.2d 634, 635 (N.Y. App. Div. 2008) (protecting the good will acquired pursuant to a merger is a legitimate interest); Sager Spuck Statewide Supply Co. v. Meyer, 751 N.Y.S.2d 318, 320 (N.Y. App. Div. 2002).

33. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (comparing the reasonableness standard as applied to a covenant ancillary to the sale of a business and in an employment agreement); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247 (N.Y. 1963) (same).


INTRODUCTION 6-1


in the context of a sale of a business is on whether the agreement is necessary to protect a legitimate interest of a former employer.34

6-1:2.5 Invention AssignmentsAn invention assignment gives an employer the legal rights to all

discoveries or intellectual property developed by an employee in the course of the employment agreement.35 At least one New York court has enforced this type of agreement where it was supported by consideration.36

6-1:3 Purpose of Restrictive Covenants

6-1:3.1 Public PolicyThe Court of Appeals has noted that “restrictive covenants which

tend to prevent an employee from pursuing a similar vocation after termination of employment are disfavored by the law.”37 The reasonableness analysis used by the courts when evaluating the enforceability of such agreements is driven by the courts’ desire not to “‘sanction[] the loss of a man’s livelihood.’”38

While New York public policy weighs against enforcement of restrictive covenants, courts have recognized the value in protecting a former employer from unfair competition by a former employee where the former employer supplied the former employee with substantial resources.39 Circumstances in which courts have found

34. Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247 (N.Y. 1963).35. United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933); Nat’l Cash

Register Co. v. Remington Arms Co., 151 N.E. 144 (N.Y. 1926).36. Magnolia Anti-Friction Metal Co. v. Singley, 17 N.Y.S. 251 (N.Y. Sup. Ct. 1981).37. Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977); see

also Gramercy Park Animal Ctr., Inc. v. Novick, 362 N.E.2d 608, 609 (N.Y. 1977) (highlighting the strong public policy against limiting a person’s ability to pursue their livelihood); Reed Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 592-93 (N.Y. 1976); Karpinski v. Ingrasci, 268 N.E.2d 751, 753 (N.Y. 1971); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247 (N.Y. 1963); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 65 n.3 (N.Y. App. Div. 2003); see also Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70 (2d Cir. 1999); Kelly v. Evolution Mkts., Inc., 626 F. Supp. 2d 364, 371-72 (S.D.N.Y. 2009); Estee Lauder Cos., Inc. v. Batra, 430 F. Supp. 2d 158, 177 (S.D.N.Y. 2006).

38. Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977) (quoting Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247 (N.Y. 1963)).

39. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1225-26 (N.Y. 1999); Gundermann & Gundermann Ins. v. Brassill, 853 N.Y.S.2d 82, 83 (N.Y. App. Div. 2007) (where customer information and good will was generated and maintained by the former employee at the former employer’s expense, the restrictive covenant was found to be reasonable).




that a former employer supplied substantial resources, and therefore had a legitimate interest to protect, include: where the former employee built relationships with clients using the employer’s “entertainment” account;40 where the former employer provided financial and support services to an employee to develop customer relationships;41 where the former employer devoted a substantial amount of time and support to projects tailored directly to specific clients;42 and where the former employer substantially invested time and money in maintaining a support staff dedicated to aiding employee representatives in addressing the needs of clients.43

Due to the fact-intensive nature of the enforcement of restrictive covenants, courts are tasked with weighing the public policy issues implicated by a particular covenant against the interests of the former employer.44 As one court noted, “[a]lthough agreements that restrain free employment are enforceable under certain circumstances, the Court’s examination of restrictive covenants is rigorous.”45

The Second Circuit has summarized the practice of New York courts as follows:

New York courts adhere to a strict approach to enforcement of restrictive covenants because their enforcement conflicts with the general public policy favoring robust and uninhibited competition, and powerful considerations of public policy which militate against sanctioning the loss of a man’s livelihood. Thus, a restrictive covenant will be rigorously examined, and enforced only to the extent necessary to protect the employer from unfair competition . . . .46

40. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 71 (2d Cir. 1999). 41. Johnson Controls, Inc. v. A.P.T. Critical Sys., 323 F. Supp. 2d 525, 535-36 (S.D.N.Y.

2004).42. Group Health Solutions Inc. v. Smith, 938 N.Y.S.2d 227 (N.Y. Sup. Ct. 2011).43. Ikon Office Solutions, Inc. v. Usherwood Office Tech., Inc., 875 N.Y.S.2d 820 (N.Y. Sup.

Ct. 2008).44. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); see infra § 6-3.45. Kelly v. Evolution Mkts., Inc., 626 F. Supp. 2d 364, 371 (S.D.N.Y. 2009).46. American Inst. of Chem. Eng’rs v. Reber-Friel Co., 682 F.2d 382, 386-87 (2d Cir. 1982)

(internal quotation marks and citations omitted).



As a result, a former employer must have a legitimate interest to protect; and until a legitimate interest is shown, the reasonableness of the scope of the covenant will not be an issue.47

The following sections of this chapter will discuss the reasonableness analysis used by courts applying New York law, as well as the application of that analysis in the context of specific professions, followed by the remedies for breach of a restrictive covenant.

6-2 CASE LAW GOVERNING THE ENFORCEMENT OF RESTRICTIVE COVENANTS

6-2:1 Absence of Statutory LawNew York statutory law does not limit a former employee’s

right to compete with a former employer or the former employer’s right to limit that competition by contract. Therefore, with a few narrow exceptions where employees in specific fields are subject to regulatory regimes (such as the Financial Industry Regulatory Authority (“FINRA”) rules48 or Rules of Professional Conduct for attorneys49), the law governing the enforceability of restrictive covenants has been developed by the courts.50

New York courts adopted and have developed a common law standard of reasonableness to determine whether a restrictive covenant will be enforced.51

47. American Inst. of Chem. Eng’rs v. Reber-Friel Co., 682 F.2d 382, 386-87 (2d Cir. 1982).

48. FINRA Rule 2140 states, “No member or person associated with a member shall interfere with a customer’s request to transfer his or her account in connection with the change in employment of the customer’s registered representative where the account is not subject to any lien for monies owed by the customer or other bona fide claim.”

49. See infra § 6-4:4. 50. See BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); AmericanBroad. Cos. v.

Wolf, 420 N.E.2d 363 (N.Y. 1981); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4 (N.Y. 1977); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590 (N.Y. 1976); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245 (N.Y. 1963).

51. USI Ins. Servs., LLC v. Miner, 801 F. Supp. 2d 175, 187 (S.D.N.Y. 2011) (citing BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999)) (“To determine whether a post-employment covenant is specifically enforceable under New York law, courts have adopted the prevailing common law reasonableness standard.”)

CASE LAW GOVERNING THE ENFORCEMENT 6-2 OF RESTRICTIVE COVENANTS




6-2:2 Court of Appeals Decisions Regarding Reasonableness

The Court of Appeals articulated the modern standard for the enforcement of restrictive covenants in BDO Seidman v. Hirshberg.52 The Court explained that a restrictive covenant will be found reasonable if the restraint (1) “is no greater than is required for the protection of a legitimate interest of the employer,” (2) “does not impose undue hardship on the employee,” and (3) does not injure the public.53 Additionally, the Court noted that a restrictive covenant will only be enforced to the extent that 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.’”54

6-2:3 Expansion of the Reasonableness FactorsNew York courts have expounded on the BDO Seidman test

and explained that the first step is to determine whether there is a necessary and legitimate interest that the former employer seeks to protect.55 Generally, legitimate interests of the former employer include the protection against misappropriation of trade secrets or confidential information and protection from competition by a former employee whose services are unique or extraordinary.56

52. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999). 53. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (emphasis in

original).54. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (quoting Reed, Roberts

Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976)); see also American Broad. Cos., Inc. v. Wolf, 420 N.E.2d 363, 367-68 (N.Y. 1981).

55. 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011) (explaining that a restrictive covenant is enforceable only to the extent that it is “reasonable and necessary to protect the employer’s legitimate interest and does not impose undue hardship on the employee.”); Allways Electric Corp. v. Abrams, 902 N.Y.S.2d 670, 670-71 (N.Y. App. Div. 2010) (concluding that “[s]ince there is no legitimate employer interest to protect, the restrictive covenants are unenforceable and the issue of partial enforcement does not arise.”); Sutherland Global Servs., Inc. v. Stuewe, 902 N.Y.S.2d 272, 274 (N.Y. App. Div. 2010) (same); Natural Organics, Inc. v. Kirkendall, 860 N.Y.S.2d 142, 143-44 (N.Y. App. Div. 2008) (same).

56. 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011) (highlighting interests that New York courts have found to be legitimate to support enforcement of a restrictive covenant); Sutherland Global Servs., Inc. v. Stuewe, 902 N.Y.S.2d 272, 274 (N.Y. App. Div. 2010) (same); Delfino Insulation Co. v. Jaworowski, 865 N.Y.S.2d 353, 354 (N.Y. App. Div. 2008) (same).


COMPONENTS OF REASONABLENESS 6-3


If there is a legitimate interest that the former employer seeks to protect, the restrictive covenant must also be reasonable in scope.57 In addition to being reasonable in duration, area, and activities restricted, the agreement cannot be unreasonably burdensome to the former employee nor harmful to the general public.58 The court must weigh a former employer’s legitimate interests – which include protecting goodwill, training, and customer contacts – with the former employee’s possible loss of livelihood, as well as the harm to the general public in inhibiting competition.59

6-3 COMPONENTS OF REASONABLENESSRestrictive covenants will typically be enforced when they are

necessary to protect a former employer’s legitimate interest,60 are reasonable in duration61 and geographic scope,62 are not unreasonably burdensome to the employee,63 and are not harmful to the general public.64

57. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (explaining the requirements necessary for enforcement of a restrictive covenant); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 470 (N.Y. App. Div. 2008); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239 (N.Y. App. Div. 2008).

58. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (explaining the requirements necessary for enforcement of a restrictive covenant); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 470-71 (N.Y. App. Div. 2008) (“A restrictive covenant is unenforceable if its duration is unreasonable because of the ‘powerful considerations of public policy which militate against sanctioning the loss of a man’s livelihood’, as well as the general public policy favoring robust and uninhibited competition.”) (internal citations omitted); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239 (N.Y. App. Div. 2008) (where the potential harm to the public was “without merit” the former employer was entitled to a preliminary injunction to enforce the restrictive covenant).

59. Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 470-72 (N.Y. App. Div. 2008) (noting that the public has an interest in “robust and uninhibited competition.”); Kanan, Corbin, Schupak & Aronow, Inc. v. FD Int’l, Ltd., 797 N.Y.S.2d 883 (N.Y. Sup. Ct. 2005).

60. See infra § 6-3:1.1.61. See infra § 6-3:2.1.62. See infra § 6-3:2.2.63. See infra § 6-3:3.64. See infra § 6-3:4; see also Ashland Mgmt. Inc v. Altair Invs. N.A., LLC, 869 N.Y.S.2d

465, 470-72 (N.Y. App. Div. 2008) (noting that the public has an interest in “robust and uninhibited competition”); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239 (N.Y. App. Div. 2008) (where an allegation of potential harm to the public was “without merit” a preliminary injunction could be granted); Riedman Corp. v. Gallager, 852 N.Y.S.2d 510, 511 (N.Y. App. Div. 2008); Prime Med. Assocs., P.C. v. Ramani, 781 N.Y.S.2d 450, 452 (N.Y. Sup. Ct. 2004) (where a restrictive covenant violates public policy it will be unenforceable).




6-3:1 Element 1: The Restrictive Covenant Must be Necessary to Protect a Legitimate Interest of the Employer

When there is no legitimate interest supporting a restrictive covenant in an employment agreement, the restriction will not be enforced regardless of whether the covenant is otherwise reasonable.65 As discussed in further detail below, legitimate interests include possession of trade secrets or confidential customer lists, and protection from competition by a former employee whose services are unique or extraordinary.66

6-3:1.1 Protecting Trade Secrets, Confidential Information, and Customer Lists

Restrictive covenants can be used to protect a former employer from unfair competition or loss of good will resulting from a former employee’s use or disclosure of trade secrets or confidential information.67 Where a former employer has sought to protect this type of information, New York courts have typically found that the covenant is reasonable, so long as the information was not publicly available and the covenant was limited in scope.68

65. Sutherland Global Servs., Inc. v. Stuewe, 902 N.Y.S.2d 272, 274 (N.Y. App. Div. 2010) (where a former employer failed to demonstrate that a restrictive covenant was necessary to protect a legitimate interest, a preliminary injunction would not be awarded); Natural Organics, Inc. v. Kirkendall, 860 N.Y.S.2d 142, 143 (N.Y. App. Div. 2008) (recognizing, “defendants met their prima facie burden of establishing their entitlement to judgment as a matter of law by demonstrating that the noncompete agreement does not serve to protect a legitimate employer interest”); TMP Worldwide Inc. v. Franzino, 703 N.Y.S.2d 183, 184 (N.Y. App. Div. 2000) (where a former employer does not show that the former employee misappropriated customer lists, trade secrets or other confidential information, or that the former employee’s skills are unique or special, a motion seeking a preliminary injunction to enforce a restrictive covenant will be denied).

66. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223-24 (N.Y. 1999) (discussing the legitimate interests of a former employer that support enforcement of a restrictive covenant); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4 (N.Y. 1977) (same); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (same); 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011) (same); Henson Grp., Inc. v. Stacy, 887 N.Y.S.2d 582, 583 (N.Y. App. Div. 2009) (same).

67. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224-25 (N.Y. 1999); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4 (N.Y. 1977); Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976).

68. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); ICS/Executon Telecom, Inc. v. Mancuso, 578 N.Y.S.2d 334, 334 (N.Y. App. Div. 1991); Comcast Sound Commc’ns, Inc. v. Hoeltke, 572 N.Y.S.2d 189 (N.Y. App. Div. 1991).




The term “trade secret” is defined in common law and federal law.69 The Economic Espionage Act of 1996 defines a trade secret as business information, in most forms, that a company has taken reasonable efforts to keep secret and from which the company derives economic value.70 New York courts have generally adopted the similar definition found in the Restatement of Torts,71 which suggests six factors to consider when determining whether information is considered a trade secret, including: (1) whether the information is known outside of the business, (2) the extent to which current employees and others involved in the business know the information, (3) the measures taken to keep the information secret, (4) the value of the information to the business and the employer’s competitors, (5) the amount of money expended developing the information, and (6) the ease by which competitors may duplicate or acquire the information.72

An employee’s prior access to confidential employer information will not necessarily result in the employee being deemed to possess a trade secret of the employer; for example, a former employee’s “recollection of information pertaining to specific needs and business habits of particular customers” has been held not to be confidential, even where the former employee was shown to have had access to detailed reports concerning the former employer’s customers.73

69. See infra Chpt. 15, discussing trade secrets generally.70. Economic Espionage Act of 1996, 18 U.S.C. §1839(3), specifically defines trade secrets as:

[A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if –(A) the owner thereof has taken reasonable measures to keep such information

secret; and(B) the information derives independent economic value, actual or potential,

from not being generally known to, and not being readily ascertainable through proper means by, the public[.]

71. Ashland Mgmt. Inc. v. Janien, 624 N.E.2d 1007, 1013 (N.Y. 1993) (quoting Restatement of Torts § 757 cmt. b (1939) and stating that a trade secret is defined as “‘any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.’”). New York is one of the few states that has not adopted the Uniform Trade Secrets Act. Faiveley Transp. USA, Inc. v. Wabtec Corp., 758 F. Supp. 2d 211, 220 (S.D.N.Y. 2010).

72. Restatement of Torts § 757, cmt. b (1939).73. Natural Organics, Inc. v. Kirkendall, 860 N.Y.S.2d 142, 143-44 (N.Y. App. Div. 2008)

(“Although the plaintiff submitted evidence that Kirkendall was privy to reports containing detailed sales information concerning the plaintiff ’s customers, ‘an employee’s recollection of information pertaining to specific needs and business habits of particular customers is not confidential.’”) (internal citations omitted).




In many cases customer lists are considered a trade secret—particularly where a former employee used wrongful conduct to gain possession of the list.74 Where a former employer’s list of customers was built over many years with significant financial expenditures and other efforts by the employer, the list is more likely to be considered a trade secret.75 However, if a customer list is readily discoverable through public sources, then it is not generally protected as a trade secret unless the employee stole the customer lists.76

When a former employee does not possess any trade secrets or confidential information, and there has been no other improper action in obtaining information (such as a breach of trust),77 courts have found no legitimate interest to support the enforcement of a restrictive covenant.78

Occasionally, a former employer may attempt to enjoin a former employee from working for a competitor by asserting the doctrine of “inevitable disclosure,” under which a former employee is prevented for some period of time from working for or

74. Marcone APW, LLC v. Servall Co., 925 N.Y.S.2d 752, 756 (N.Y. App. Div. 2011) (where the former employee misappropriated proprietary information it may be entitled to trade secret protection); see also Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593-94 (N.Y. 1976) (where there is no showing that a former employee acted wrongfully including either pilfering or memorizing customer lists, the information will not be protected); Leo Silfen, Inc. v. Cream, 278 N.E.2d 636, 637, 639 (N.Y. 1972) (where an allegation that a former employee made copies of confidential files or recorded details in those files was dropped, trade secret protection is improper).

75. See, e.g., Renaissance Nutrition, Inc. v. Kurtz, No. 08-cv-800S, 2012 U.S. Dist. LExIS 2490, at *9 (W.D.N.Y. Jan. 7, 2012) (the court found that a former employer had a legitimate interest in protecting client relationships developed through significant resources expended training and educating the former employees); Town & Country House & Home Serv., Inc. v. Newbery, 147 N.E.2d 724, 726 (N.Y. 1958); Marcone APW, LLC v. Servall Co., 925 N.Y.S.2d 752, 756 (N.Y. App. Div. 2011) (where information is compiled with considerable effort by the former employer over several years the former employer has a legitimate interest in protecting that information); Eastern Bus. Sys., Inc. v. Specialty Bus. Solutions, LLC, 739 N.Y.S.2d 177, 179 (N.Y. App. Div. 2002) (the former employer “presented evidence showing that the information in question was not available to the public, was available to limited personnel inside [the former employer], was highly valuable to [the former employer] and its competitors, and that considerable effort and money was expended in obtaining the information. Thus, the [former employer] showed that trade secrets existed”).

76. Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4 (N.Y. 1977).77. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 594 (N.Y. 1976).78. See, e.g., Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590 (N.Y. 1976); IVI

Envtl., Inc. v. McGovern, 707 N.Y.S.2d 107 (N.Y. App. Div. 2000) (finding that there was no legitimate interest to be protected where the client list was ascertainable from outside sources and the former employee was not in possession of confidential information).




associating with a competitor of the former employer where there is an imminent risk the former employee will disclose the former employer’s trade secret(s).79 The inevitable disclosure doctrine has been asserted in combination with a post-employment noncompete agreement, and where no such agreement is in place.80 The relatively few courts that have analyzed the doctrine under New York law appear to require, at a minimum, a showing of misappropriation of trade secrets by the departing employee.81 Absent a showing of actual misappropriation of trade secret information, the inevitable disclosure doctrine is disfavored because it seeks to imply a restrictive covenant and thus runs counter to the strict scrutiny such agreements face in New York.82 As expressed by one court, “the inevitable disclosure doctrine treads an exceedingly narrow path through judicially disfavored territory.”83

6-3:1.2 Limiting the Solicitation of CustomersNew York courts recognize that former employers have a

significant interest in protecting customers gained by former employees using the former employer’s resources, especially financial resources.84 However, absent an express agreement to the

79. Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 65 (N.Y. App. Div. 2003).80. EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 309-12 (S.D.N.Y. 1999) (discussing the

inevitable disclosure doctrine in cases where there was a noncompete agreement in place and where there was no express covenant); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62 (N.Y. App. Div. 2003) (discussing the application of the inevitable disclosure doctrine in a case where there was no restrictive covenant in effect).

81. EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 310 (S.D.N.Y. 1999) (the inevitable disclosure doctrine cannot be a run-around to the inclusion of a restrictive covenant in an employment agreement); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 65-66 (N.Y. App. Div. 2003) (noting that the record was insufficient to support a preliminary injunction where no evidence was proffered alleging that the former employee had misappropriated trade secrets or breached the confidentiality agreement); DoubleClick, Inc. v. Henderson, No. 116914/97, 1997 N.Y. Misc. LExIS 577, at *13-17 (N.Y. Sup. Ct. Nov. 5, 1997) (seeking relief under a misappropriation of trade secrets cause of action).

82. EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 310-11 (S.D.N.Y. 1999) (noting that restrictive covenants should be the “product of open negotiation” not implied through the use of the inevitable disclosure doctrine and refusing to “re-write the parties’ employment agreement under the rubric of inevitable disclosure”); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 65-66 (N.Y. App. Div. 2003).

83. EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 310 (S.D.N.Y. 1999).84. Ayco Co., L.P. v. Frisch, 795 F. Supp. 2d 193, 206 (N.D.N.Y. 2011) (a former employee’s

services are “generally deemed unique” where client relationships are built in significant part through the use of the former employer’s resources); Johnson Controls, Inc. v. ATP Critical Sys., 323 F. Supp. 2d 525, 534 (S.D.N.Y. 2004) (concluding “it is now clear that under




contrary, a former employee may typically solicit customers of the former employer provided the former employee does not do so by means of wrongful conduct or through the use of a customer list that is considered a trade secret.85

When a restrictive covenant limits a former employee’s ability to solicit customers of the former employer and is reasonable in all other respects, it can be enforced.86 However, a covenant restricting solicitation of “all present and potential customers” without a geographic limitation has been found to be overly broad and was not enforced as written.87

Typically, a former employer may not prevent a former employee from soliciting customers that the former employee brought to the former employer through efforts that the former employer did not subsidize or financially support.88 Similarly, where a customer makes a personal choice to follow a former employee to his or her new employer, there is no violation of a nonsolicitation covenant.89 A newspaper or Internet advertisement, not directed at anyone in particular, has been found not to constitute solicitation of a former employer’s customers.90

New York law an employer also has a legitimate interest in protecting client relationships developed by an employee at the employer’s expense.”); Good Energy, L.P. v. Kosachuk, 853 N.Y.S.2d 75, 77 (N.Y. App. Div. 2008).

85. Leo Silfen, Inc. v. Cream, 278 N.E.2d 636, 641 (N.Y. 1972); Starlight Limousine Serv. v. Cucinella, 713 N.Y.S.2d 195 (N.Y. App. Div. 2000) (where a former employee engaged in no wrongful conduct and the customer lists were not confidential trade secrets the former employee was not enjoined from soliciting customers of a former employer); Amana Express Int’l, Inc. v. Pier-Air Int’l, Ltd., 621 N.Y.S.2d 108 (N.Y. App. Div. 1995).

86. Willis of N.Y., Inc. v. DeFelice, 750 N.Y.S.2d 39, 42 (N.Y. App. Div. 2002).87. NCR Corp. v. Rotondi, 450 N.Y.S.2d 198 (N.Y. App. Div. 1982).88. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1225 (N.Y. 1999); Willis of N.Y.,

Inc. v. DeFelice, 750 N.Y.S.2d 39, 42 (N.Y. App. Div. 2002) (where the former employee brought clients to the former employer he cannot be prevented from soliciting those clients).

89. Investor Access Corp. v. Doremus & Co., 588 N.Y.S.2d 842, 845 (N.Y. App. Div. 1992) (where the court found that clients of the former employer would have left upon the end of the relationship with the former employee, the restrictive covenant was unenforceable); Walter Karl, Inc. v. Wood, 528 N.Y.S.2d 94, 98 (N.Y. App. Div. 1988) (where the record contained letters from clients noting that they chose to leave the former employer, injunctive relief for the former employer was unwarranted).

90. Slomins, Inc. v. Gray, 575 N.Y.S.2d 545, 547 (N.Y. App. Div. 1991) (an advertisement in a local newspaper concerning a former employee’s new employment); Melvin D. Hiller & Jeffrey Hiller LLC v. Buel, 939 N.Y.S.2d 740, No. 500410/09, 2011 N.Y. Misc. LExIS 4970 (N.Y. Sup. Ct. Sept. 28, 2011) (Internet advertisement).




6-3:1.3 Limiting Competition from Former Employees with Unique or Extraordinary Services or Skills

Even when a former employee does not possess trade secrets or confidential information, a restrictive covenant may still be enforced where the former employee has skills that are unique or extraordinary.91 A former employee’s skills are typically considered unique where the employee’s relationship with his or her customers is such that there is a “substantial risk” that the employee could divert all or part of the customers’ business.92 In such a case, the former employer may have a legitimate interest in protecting itself from competition by that former employee.93 Courts have typically supported former employers’ interests in such protection,94 and many give wide latitude to a covenant seeking to protect a former employer from a former employee whose skills are unique.95

Where the employee’s services are general or commonplace, a particular employee’s skills in providing those services will not be considered “extraordinary” or “unique.”96 Rather, the employee’s

91. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011) (where a former employer raises an issue of fact as to whether a former employee’s services were unique or special, even where customer lists were readily available to others in the industry, a claim for breach of a restrictive covenant could withstand a summary judgment motion); Crown IT Servs., Inc. v. Koval-Olsen, 782 N.Y.S.2d 708, 711 (N.Y. App. Div. 2004).

92. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 72 (2d Cir. 1999).93. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224-25 (N.Y. 1999); 1 Model

Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011); Henson Grp., Inc. v. Stacy, 887 N.Y.S.2d 582, 583 (N.Y. App. Div. 2009) (stating that where evidence showed that the former employee’s services were unique or irreplaceable because of his relationships with customers cultivated partially through the use of his expense account with his former employer, the former employer could recover for breach of the restrictive covenant).

94. 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011); Henson Grp., Inc. v. Stacy, 887 N.Y.S.2d 582, 583 (N.Y. App. Div. 2009).

95. See BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 477 (N.Y. App. Div. 2008) (commenting that [a] “an anticompetition covenant between an employer and an employee whose services are ‘unique or extraordinary’ is one type of restrictive covenant that is not subject to exacting scrutiny.”).

96. See, e.g., Briskin v. All Seasons Servs., 615 N.Y.S.2d 166 (N.Y. App. Div. 1994) (being a knowledgeable and experienced sales representative did not make the former employee’s skills unique); ABC Mobile Breaks, Div. of D.A. Mote, Inc. v. Leyland, 446 N.Y.S.2d 660 (N.Y. App. Div. 1981) (skills acquired by a former employee in high school and prior to his work with the former employer were not “special, unique or extraordinary”).




profession itself must require some special skills or training.97 Furthermore, it is not sufficient for a former employee to simply be a good and valuable employee;98 the skills of the former employee must be of high value to the industry generally, not just the former employer, for a court to enforce a restrictive covenant on the basis of the employee’s skills.99 Whether a former employee’s skills are unique, special or extraordinary is usually an issue of fact.100

The mere fact that a former employee may have acquired certain skills during his or her employment is not sufficient to render a restrictive covenant reasonable, though it is a factor to be considered.101

Where a former employee’s skills are general in nature, the former employee is not highly compensated, or no special skills or training is needed for a job, then that former employee’s skills will generally not be considered unique or special.102 A former employee who is simply effective, experienced, well trained and knowledgeable is not, ipso facto, considered to possess special or unique skills.103

97. Briskin v. All Seasons Servs., 615 N.Y.S.2d 166 (N.Y. App. Div. 1994); ABC Mobile Breaks, Div. of D.A. Mote, Inc. v. Leyland, 446 N.Y.S.2d 660 (N.Y. App. Div. 1981).

98. Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977); Empire Farm Credit, ACA v. Bailey, 657 N.Y.S.2d 211, 212 (N.Y. App. Div. 1997).

99. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70-71 (2d Cir. 1999); BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 249 (N.Y. 1963).

100. 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431, 432 (N.Y. App. Div. 2011); Crown IT Servs., Inc. v. Koval-Olsen, 782 N.Y.S.2d 708, 711 (N.Y. App. Div. 2004).

101. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (“[N]o restrictions should fetter an employee’s right to apply to his own best advantage the skills and knowledge acquired by the overall experience of his previous employment.”); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245 (N.Y. 1963).

102. Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977); Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 249 (N.Y. 1963) (high performance and producing good quality work did not make an employee’s skills unique). See, e.g., Accent Stripe, Inc. v. Taylor, 612 N.Y.S.2d 533 (N.Y. App. Div. 1994) (where a former employee’s position required no unique skills or specialized training, the former employee’s services were not unique or irreplaceable); Comcast Sound Commc’ns, Inc. v. Hoeltke, 572 N.Y.S.2d 189, 189-90 (N.Y. App. Div. 1991) (simply being a valuable sales person did not make the former employee unique or cause the former employer special harm at the end of the employment relationship).

103. Savannah Bank, N.A. v. Sav. Bank of Fingerlakes, 691 N.Y.S.2d 227, 229 (N.Y. App. Div. 1999) (being knowledgeable and experienced did not make a former employee’s services unique or extraordinary); Empire Farm Credit, ACA v. Bailey, 657 N.Y.S.2d 211, 212 (N.Y. App. Div. 1997); Ken J. Pezrow Corp. v. Seifert, 602 N.Y.S.2d 468 (N.Y. App. Div. 1993) (being highly successful and valuable did not make a former employee “irreplaceable” or cause the former employer special harm).




6-3:2 Elements 2 and 3: Duration and Geographic Scope Must Be Proportional to Protected Interest

Once a court finds that the former employer has a legitimate interest to be protected by a restrictive covenant, then the court must determine whether the restrictions contained in the covenant, including the duration and geographic scope, are no greater than is necessary to protect that legitimate interest, given the totality of the circumstances.104

6-3:2.1 DurationThe determination of whether the duration of the restrictive

covenant is reasonable requires a fact-intensive analysis that looks at the variables of each case and each agreement.105 In determining whether the time period of a covenant is reasonable, courts may look to its length (i.e., no longer than necessary to protect the former employer’s legitimate interest),106 or to the point at which the knowledge possessed by a former employee may no longer be relevant.107

One court has noted that, “[u]nder New York law, the durational reasonableness of a non-compete agreement is judged by the length of time for which the employer’s confidential information will be competitively valuable.”108

The absence of a durational limit in an agreement does not automatically make that agreement unreasonable.109

104. Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 179-80 (S.D.N.Y. 2006) (analyzing the requirements necessary to enforce a restrictive covenant); BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224-25 (N.Y. 1999) (same); 1 Model Mgmt., LLC v. Kavoussi, 918 N.Y.S.2d 431 (N.Y. App. Div. 2011) (same).

105. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224 (N.Y. 1999) (highlighting how the analysis of the enforcement of a restrictive covenant must be determined on case-by-case basis); Karpinski v. Ingrasci, 268 N.E.2d 751, 753-54 (N.Y. 1971); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 472 (N.Y. App. Div. 2008); see also Bus. Intelligence Servs. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y. 1984) (“The reasonableness of [a restrictive covenant] must be measured by the circumstances and the context in which enforcement is sought.”).

106. Scott, Stackrow & Co., C.P.A.’s, P.C. v. Skavina, 780 N.Y.S.2d 675, 677 (N.Y. App. Div. 2004).

107. Business Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1072-73 (S.D.N.Y. 1984).

108. Estee Lauder Cos, Inc. v. Batra, 430 F. Supp. 2d 158, 180 (S.D.N.Y. 2006).109. Karpinski v. Ingrasci, 268 N.E.2d 751, 753-54 (N.Y. 1971) (“It is settled that such a

covenant will not be stricken merely because it ‘contains no time limit or is expressly made unlimited as to time.’”) (internal citations omitted); Ashland Mgmt. Inc. v. Altair Invs. N.A.,




Generally, so long as the rest of the covenant is enforceable, a time limitation of up to and including one year has been regarded as reasonable.110 Even covenants up to five years have been enforced.111 Thus, there is no bright line test for the maximum “reasonable” length of a restrictive covenant.112

6-3:2.2 Geographic ReachTo be enforceable, a restrictive covenant must be reasonable in

its geographic scope.113 The area covered by the covenant must be no larger than necessary for the protection of the legitimate interest articulated by the employer.114 A covenant is likely to be considered reasonable if the area covered coincides with the location of a former employer’s customers or clients.115 Where a restraint covers the area in which the former employee, during the term of employment, established significant contacts, the scope will usually be reasonable.116

LLC, 869 N.Y.S.2d 465, 472 (N.Y. App. Div. 2008) (courts must use the reasonableness analysis to determine if a duration is reasonable under the circumstances; there is no reason to assume that an unlimited duration is automatically unreasonable).

110. See, e.g., Asness v. Nelson, 711 N.Y.S.2d 717 (N.Y. App. Div. 2000) (one year restriction); Rochester Tel. Mobile Commc’ns, Inc. v. Auto Sound Sys., Inc., 583 N.Y.S.2d 327 (N.Y. App. Div. 1992) (six month restriction).

111. Good Energy, L.P. v. Kosachuk, 853 N.Y.S.2d 75 (N.Y. App. Div. 2008) (the five-year duration was reasonable); Borne Chem. Co. v. Dictrow, 445 N.Y.S.2d 406, 411-412 (N.Y. App. Div. 1981) (three years); Uniform Rental Div. v. Moreno, 441 N.Y.S.2d 538, 539 (N.Y. App. Div. 1981) (two years).

112. First Empire Sec., Inc. v. Miele, 851 N.Y.S.2d 57, No. 20247-2007, 2007 N.Y. Misc. LExIS 6744, at *11-12 (N.Y. Sup. Ct. Aug. 10, 2007) (“A restrictive covenant limited for a period of two years has been found to be reasonable but that period of time does not, prima facie, require a finding that the covenant is enforceable. Instead, the Court is required to look at all of the facts of the case to determine if the covenant not to compete may be valid.”) (internal citations omitted).

113. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) (setting forth the requirements necessary to enforce a restrictive covenant); Ricca v. Ouzounian, 859 N.Y.S.2d 238 (N.Y. App. Div. 2008); Zinter Handling, Inc. v. Britton, 847 N.Y.S.2d 271 (N.Y. App. Div. 2007).

114. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504, 506 (N.Y. App. Div. 2003); Alside Div. of Associated Materials Inc. v. LeClair, 743 N.Y.S.2d 898, 898-99 (N.Y. App. Div. 2002).

115. Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504, 507 (N.Y. App. Div. 2003) (where the area restriction is less than the former employer’s service area, the covenant will be reasonable in area).

116. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999); Alside Div. of Assoc. Materials Inc. v. LeClair, 743 N.Y.S.2d 898, 898-99 (N.Y. App. Div. 2002) (an area limitation covering the territory where the former employee worked is reasonable).




Evaluating the reasonableness of the geographic scope of a restrictive covenant is a fact-specific inquiry for which courts look to the totality of the circumstances.117 An unlimited geographic scope in a restrictive covenant will not automatically render the restraint invalid.118 At least one court applying New York law has found a covenant reasonable where it restricted competition across the United States, because the former employer conducted business on a national scale.119 Yet, another court has determined that a restriction covering the entire United States is not reasonable where the employer’s business only operated in eight states.120

6-3:3 Element 4: The Restrictive Covenant May Not Be Unreasonably Burdensome to the Former Employee

6-3:3.1 The Restriction Cannot Be Unduly Harsh or Oppressive to the Former Employee

To be enforceable, restrictive covenants must be reasonable in the burden they place on the former employee. The geographic scope and duration of the agreement cannot be so unduly harsh and oppressive to the former employee as to interfere with the former employee’s ability to earn a living.121 Courts are especially skeptical of covenants that prevent a former employee from engaging in the same or similar profession.122

117. See, e.g., Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504, 507 (N.Y. App. Div. 2003); Alside Div. of Assoc. Materials Inc. v. LeClair, 743 N.Y.S.2d 898, 898-99 (N.Y. App. Div. 2002) (the court based their decision on a full review of the record including affidavits submitted by the former employee in a previous action).

118. See, e.g., Natsource LLC v. Paribello, 151 F. Supp. 2d 465, 471-72 (S.D.N.Y. 2001) (in a case where the former employer was in the business of brokering energy-related commodities, which had a finite number of customers, the lack of a geographic limitation did not render that covenant unreasonable); Malcolm Pirnie, Inc. v. Werthman, 720 N.Y.S.2d 863 (N.Y. App. Div. 2001) (where the restriction was client based, the lack of a geographic limitation did not make that covenant unreasonable); Deborah Hope Doelker, Inc. v. Kestly, 449 N.Y.S.2d 52, 53 (N.Y. App. Div. 1982) (where the nature of the business was such that the former employer’s sales were almost exclusively via telephone, the lack of a geographic area was not unreasonable).

119. Innovative Networks, Inc. v. Satellite Airlines Ticketing Ctrs., Inc., 871 F. Supp. 709, 728 (S.D.N.Y. 1995); see also Business Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1073 (S.D.N.Y. 1984) (where the former employer’s business was international, the worldwide scope of the restrictive covenant was not unreasonable).

120. Good Energy, L.P. v. Kosachuk, 853 N.Y.S.2d 75 (N.Y. App. Div. 2008).121. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Ashland Mgmt. Inc. v.

Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 471 (N.Y. App. Div. 2008).122. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976);

Karpinski v. Ingrasci, 268 N.E.2d 751, 754 (N.Y. 1971) (the restriction was unreasonable




6-3:3.2 Employee Choice DoctrineWhile New York courts are generally skeptical of restrictive

covenants, an exception is the employee choice doctrine, under which courts will typically enforce an agreement conditioning the former employer’s obligation to pay deferred compensation or benefits on the former employee’s forbearance from competition with the former employer for a specified period of time.123

6-3:3.2a Employment Relationship Ended by EmployeeWhen there is an at-will employment relationship, and an

employee chooses to end the relationship, a covenant in which the employer conditions receipt of a post-employment payment or benefit on compliance with a restrictive covenant (frequently called “forfeiture-for-competition” clause) will typically be enforced without regard to reasonableness.124

Courts look favorably on forfeiture-for-competition clauses because the former employee is given a choice between receiving the deferred compensation or benefits, or competing with the former employer and forfeiting the deferred compensation or benefits.125

6-3:3.2b Employment Relationship Ended by EmployerAn essential requirement for application of the employee choice

doctrine is the employer’s continued willingness to retain the

where the former employee would have been excluded from the only profession for which he was trained); Savannah Bank, N.A. v. Sav. Bank of Fingerlakes, 691 N.Y.S.2d 227, 229 (N.Y. App. Div. 1999) (“Restrictive covenants contained in employment contracts that tend to prevent an employee from pursuing a similar vocation after termination are disfavored in the law.”); Skaggs-Walsh, Inc. v. Chmiel, 638 N.Y.S.2d 698, 699 (N.Y. App. Div. 1996) (same); Ken J. Pezrow Corp. v. Seifert, 602 N.Y.S.2d 468, 469 (N.Y. App. Div. 1993) (same); Shannon Stables Holding Co., Ltd. v. Bacon, 522 N.Y.S.2d 908 (N.Y. App. Div. 1987) (same).

123. Morris v. Schroder Capital Mgmt. Int’l, 859 N.E.2d 503, 506 (N.Y. 2006) (explaining the application of the employee choice doctrine in New York); Kristt v. Whelan, 164 N.Y.S.2d 239 (N.Y. App. Div. 1957), aff’d, 155 N.E.2d 116 (N.Y. 1958).

124. Morris v. Schroder Capital Mgmt. Int’l, 859 N.E.2d 503, 506 (N.Y. 2006) (noting that the employee choice doctrine “rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee’s liberty to earn a living.”).

125. IBM v. Martson, 37 F. Supp. 2d 613 (S.D.N.Y. 1999); Morris v. Schroder Capital Mgmt. Int’l, 859 N.E.2d 503, 506-07 (N.Y. 2006).




employee.126 While some courts have refused to enforce forfeiture-for-competition clauses in situations where the employee is terminated without cause without any further analysis,127 other courts addressing the issue have held that where an employee is terminated without cause, the covenant may be enforced, subject to a reasonableness analysis.128

Courts have disagreed, however, on the “reasonableness” standard to apply in such circumstances; some courts have focused on the reasonableness analysis applied to restrictive covenants generally,129 and others have focused on the forfeiture as a factor affecting a reasonableness determination.130

6-3:4 Element 5: The Restrictive Covenant Must Not Harm the General Public

Finally, the enforcement of a restrictive covenant must not result in harm to the general public.131 Courts seek to limit the effect that restrictive covenants will have on the interests of the public, including the public’s interest in competition.132 New York courts

126. Lucente v. IBM., 310 F.3d 243, 254 (2d Cir. 2002) (noting that the “bedrock question” was whether the former employee quit or was fired, and also noting that enforcing the doctrine where the employee is involuntarily discharged would be “unconscionable”); SIFCO Indus. Inc. v. Advanced Plating Techs. Inc., 867 F. Supp. 155, 158 (S.D.N.Y. 1994) (“New York courts will not enforce a non-competition provision in an employment agreement where the former employee was involuntarily terminated.”); Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 397 N.E.2d 358, 360 (N.Y. 1979) (stating, “we now conclude that our own policies—those in favor of permitting individuals to work where and for whom they please, and against forfeiture—preclude the enforcement of a forfeiture-for-competition clause where the termination of employment is involuntary and without cause.”).

127. Arakelian v. Omnicare, Inc., 135 F. Supp. 2d 22, 41-42 (S.D.N.Y. 2010); SIFCO Indus., Inc. v. Advanced Plating Techs., Inc., 867 F. Supp. 155, 158-59 (S.D.N.Y. 1994).

128. Morris v. Schroder Capital Mgmt. Int’l, 859 N.E.2d 503, 506-07 (N.Y. 2006) (“[A]lthough a restrictive covenant will be enforced without regard to reasonableness if an employee left his employer voluntarily, a court must determine whether forfeiture is ‘reasonable’ if the employee was terminated involuntarily and without cause.”).

129. Lucente v. IBM, 262 F. Supp. 2d 109, 112-16 (S.D.N.Y. 2003) (discussing standards of reasonableness as advanced by the parties to the case).

130. York v. Actmedia Inc., No. 88 Civ. 8763, 1990 WL 41760, at *1 (S.D.N.Y. 1990). 131. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) (setting forth the requirements

for enforcement of a restrictive covenant); Gelder Med. Grp. v. Webber, 363 N.E.2d 573, 576 (N.Y. 1977); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 470 (N.Y. App. Div. 2008); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239 (N.Y. App. Div. 2008); D & W Diesel, Inc. v. McIntosh, 762 N.Y.S.2d 851, 852 (N.Y. App. Div. 2003).

132. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 471 (N.Y. App. Div. 2008) (highlighting the “general public policy favoring robust and uninhibited competition.”); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239 (N.Y. App. Div. 2008) (where there were two other hospitals in a




consider the public to have an interest in the skills that the former employee may possess and typically analyze whether enforcing the covenant will deprive the public of access to individuals with similar skills.133

6-3:5 Other Considerations in Evaluating the Reasonableness of the Restrictive Covenant

6-3:5.1 SalaryOne factor that courts often consider is whether a former

employee continues to earn a salary during the duration of the noncompete restriction.134 The Southern District has recognized that “[t]he desire to avoid ‘impairing the employee’s ability to earn a living,’ is largely mitigated where an individual continues to receive a salary in return for not competing.”135

6-3:5.2 ConsiderationRestrictive covenants must be supported by consideration.136

Courts will look to the bargaining power and the consideration underlying the original agreement (including a meaningful change in benefits) when determining whether there exists consideration to support enforcing the agreement.137 Typically, as long as a restrictive

particular area and several other surgeons at the hospital, the allegation of harm to the general public was without merit); D & W Diesel, Inc. v. McIntosh, 762 N.Y.S.2d 851, 852 (N.Y. App. Div. 2003).

133. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (the restraint as narrowed by the court would not “seriously impinge on the availability of accounting services in the Buffalo area from which the public may draw”); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239-40 (N.Y. App. Div. 2008) (the public will not be deprived of a former employee’s skills where there were two other hospitals and several other surgeons in a particular area that were capable of doing similar work).

134. Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 180 (S.D.N.Y. 2006) (noting that whether a former employee continues to receive a salary cannot be overlooked); see also Payment Alliance Int’l, Inc. v. Ferreira, 530 F. Supp. 2d 477, 485 (S.D.N.Y. 2007) (where a restrictive covenant does not provide a former employee with a salary for the period of the covenant, it does not make the covenant automatically unreasonable); Maltby v. Harlow Meyer Savage, Inc., 637 N.Y.S.2d 110, 111 (N.Y. App. Div. 1996).

135. Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 180 (S.D.N.Y. 2006) (internal citations omitted).

136. Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903, 906 (N.Y. App. Div. 1992).

137. Iannucci v. Segal Co., No. 06-cv-4720, 2006 U.S. Dist. LExIS 43339, *14 (S.D.N.Y. June 26, 2006) (continued employment of an at-will employee is adequate consideration); Gazzola-Kraenzlin v. Westchester Med.l Grp., P.C., 782 N.Y.S.2d 115, 117 (N.Y. App. Div.


APPLICABILITY TO SPECIFIC PROFESSIONS 6-4


covenant was included as part of an employment agreement that provided consideration as a whole, courts have found adequate consideration.138

A restrictive covenant entered into after an employment relationship has begun may still be enforceable so long as the employee continues to be employed, even if no other benefits are exchanged.139 The continuance of an at-will employment can be considered sufficient consideration.140

Where an employee entered into a restrictive covenant in an equal bargaining position and consulted with independent counsel, the restriction will usually be considered reasonable.141

6-4 APPLICABILITY TO SPECIFIC PROFESSIONS

Courts in New York give more weight to the interests of a former employer in evaluating restrictive covenants where the former employee is a member of a “learned profession.”142 This approach is favored by the courts because “professionals” are ordinarily seen as providing unique or extraordinary services.143 Therefore, when a covenant between an employer and a professional is reasonable in time and area, the legitimate interest of the employer typically will

2004) (same); Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903 (N.Y. App. Div. 1992) (same); Fullman v. R & G Brenner Income Tax Consultants, 897 N.Y.S.2d 669, No. 106634/07, 2009 N.Y. Misc. LExIS 1776 (N.Y. Sup. Ct. June 23, 2009) (continued employment under an agreement that is signed as the product of superior bargaining power on the part of the former employer is not adequate consideration).

138. Gazzola-Kraenzlin v. Westchester Med. Grp., P.C., 782 N.Y.S.2d 115, 117 (N.Y. App. Div. 2004) (citing Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903 (N.Y. App. Div. 1992)).

139. Arthur Young & Co. v. Galasso, 538 N.Y.S.2d 424, 427 (N.Y. Sup. Ct. 1989).140. Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903 (N.Y. App. Div. 1992);

see also Iannucci v. Segal Co., No. 06-cv-4720, 2006 U.S. Dist. LExIS 43339 (S.D.N.Y. June 26, 2006).

141. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 71 (2d Cir. 1999). 142. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (“With agreements

not to compete between professionals, however, we have given greater weight to the interests of the employer in restricting competition within a confined geographical area . . . The rationale for the differential application of the common-law rule of reasonableness . . . was that professionals are deemed to provide ‘unique or extraordinary’ services.”); see also Gelder Med. Grp. v. Webber, 363 N.E.2d 573 (N.Y. 1977); Karpinski v. Ingrasci, 268 N.E.2d 751 (N.Y. 1971).

143. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999); Peconic Surgical Grp., P.C. v. Cervone, 930 N.Y.S.2d 175, No. 7026-11, 2011 N.Y. Misc. LExIS 2821 (N.Y. Sup. Ct. June 1, 2011).




be presumed.144 Courts do still weigh whether the covenant harms the public because of the loss of a professional’s unique skills; however, many courts are not persuaded where there are other capable professionals in a close radius (i.e., at the same hospital as a surgeon whose employment agreement contained a restrictive covenant).145

Whether a particular type of work is considered a “profession” is usually a question of fact, with courts looking to whether the activity requires formal education, training, or licensure, is regulated, has a code of conduct or ethics including an obligation to the public interest, and has a system of discipline.146 Even where a particular activity appears to meet the requirements for a “learned profession,” additional facts can undermine the rationale for presuming the employer’s interest. For example, in BDO Seidman v. Hirshberg,147 the Court of Appeals found that while accountancy “closely correspond[s] to the criteria for a learned profession,” the fact that the former employer was a “national accounting firm seeking to enforce the agreement within a market consisting of the entirety of a major metropolitan area” meant that the court applied “independent scrutiny” of the covenant at issue.148

6-4:1 Health Care ProfessionalsRestrictions on the employment of health care professionals

may pose a significant public policy concern.149 Public policy

144. Gelder Med. Grp. v. Webber, 363 N.E.2d 573 (N.Y. 1977); Karpinski v. Ingrasci, 268 N.E.2d 751 (N.Y. 1971) (stating that restrictive covenants are enforceable against professionals, specifically physicians, so long as they are reasonable in scope); Novendstern v. Mr. Kisko Med. Grp., 576 N.Y.S.2d 329, 330 (N.Y. App. Div. 1991).

145. Ricca v. Ouzounian, 859 N.Y.S.2d 238 (N.Y. App. Div. 2008) (where other surgeons practice at the same hospital and there are other accessible hospitals in the area, there is no harm to the public); see also Gelder Med. Grp. v. Webber, 363 N.E.2d 573, 577 (N.Y. 1977) (where the former employee is not the only physician in the area, as there were other accessible surgeons in neighboring areas, there is no harm to the public); Peconic Surgical Grp., P.C. v. Cervone, 930 N.Y.S.2d 175, No. 7026-11, 2011 N.Y. Misc. LExIS 2821 (N.Y. Sup. Ct. June 1, 2011) (same).

146. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (setting forth factors indicating that a particular occupation is a “profession”).

147. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999).148. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224 (N.Y. 1999).149. See Muller v. N.Y. Heart Ctr. Cardiovascular Specialists, P.C., 656 N.Y.S.2d 464, 465

(N.Y. App. Div. 1997) (holding that a restrictive covenant preventing a cardiologist from providing proper care to the patients he served in a particular area was harmful to the general public).


APPLICABILITY TO SPECIFIC PROFESSIONS 6-4


emphasizes patient choice and access to competent professionals, so courts have been wary of enforcing restrictive covenants against such professionals.150 Although a number of courts have enforced these covenants in circumstances where the restrictions were found to be reasonably limited in duration and territorial reach, courts typically carefully scrutinize the potential for harm to the public and the burden on the employee.151 Courts have enforced restrictive covenants where the restriction coincides with a territory in which the medical practice of the former employer extends.152 The same analysis has been applied to restrictive covenants for optometrists153 and veterinarians.154

6-4:2 SalespersonsThe unique relationship that salespersons have with customers of

their employers has caused some courts to give deference to former employers when determining whether to enforce covenants not to compete applicable to sales professionals.155 Former employers can be especially harmed by salespersons, because the salesperson is the direct contact with the customer.156 While salespersons are not

150. Muller v. N.Y. Heart Ctr. Cardiovascular Specialists, P.C., 656 N.Y.S.2d 464, 464 (N.Y. App. Div. 1997).

151. See Gelder Med. Grp. v. Webber, 363 N.E.2d 573, 577 (N.Y. 1977) (noting the significance of the fact that there was no harm to the public by enforcing the restrictive covenant where the public had access to other health care providers); Ricca v. Ouzounian, 859 N.Y.S.2d 238, 239-40 (N.Y. App. Div. 2008) (same); Albany Med. Coll. v. Lobel, 745 N.Y.S.2d 250, 251-52 (N.Y. App. Div. 2002) (same); Muller v. N.Y. Heart Ctr. Cardiovascular Specialists P.C., 656 N.Y.S.2d 464 (N.Y. App. Div. 1997) (refusing to enforce a covenant where it prevents a physician from providing proper care to his patients in a certain area); Bollengier v. Gulati, 650 N.Y.S.2d 56, 57-58 (N.Y. App. Div. 1996) (where there are other professionals who perform the same services in a given area the restrictive covenant may be enforced).

152. Karpinski v. Ingrasci, 268 N.E.2d 751, 753 (N.Y. 1971) (noting that the area covered was the exact area over which the practice of the former employer extended); Bollengier v. Gulati, 650 N.Y.S.2d 56, 57-58 (N.Y. App. Div. 1996) (stating “inasmuch as the subject covenant’s reach is confined to . . . the territory over which [the former employer’s] practice extends . . . it appears to be reasonable”); Novendstern v. Mr. Kisko Med. Grp., 576 N.Y.S.2d 329 (N.Y. App. Div. 1991).

153. Rudolph Bros. v. Greulic, 21 N.Y.S.2d 971 (N.Y. Sup. Ct. 1940).154. Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504 (N.Y. App. Div. 2003).155. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 71-72 (2d Cir. 1999) (noting that while some

New York courts have not enforced covenants against salespersons, others have determined that where a salesperson has a relationship with customers of a former employer, such that the former employee may “divert” business from the former employer, their services can be unique); Uniform Rental Div., Inc. v. Moreno, 441 N.Y.S.2d 538, 539 (N.Y. App. Div. 1981) (where a former employee was the “star” salesman and the covenant was reasonable in other respects the covenant would be enforced).

156. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 72 (2d Cir. 1999).




normally considered “professionals,” courts have found instances where the services of a particular salesperson were “unique,” making it more likely that a restrictive covenant will be enforced.157

6-4:3 Independent ContractorsWhile not necessarily considered employees, courts have been

willing to enforce restrictive covenants against independent contractors.158 In such cases, courts will analyze the ongoing relationship to determine whether the continuing relationship provided adequate consideration to support the restrictive covenant.159

6-4:4 LawyersEthical rules prohibit restrictive covenants in employment

agreements among lawyers. The New York Rules of Professional Conduct prohibit lawyers from offering or making:

(1) a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(2) an agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy.160

157. See, e.g.,Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 72 (2d Cir. 1999) (where a former employee’s relationship with customers was “such that there [was] a substantial risk that the employee [would] divert all or part of the business” of the former employer); Uniform Rental Div., Inc. v. Moreno, 441 N.Y.S.2d 538 (N.Y. App. Div. 1981) (where the former employee was the “star” salesperson of the former employer); Maltby v. Harlow Meyer Savage, Inc., 633 N.Y.S.2d 926 (N.Y. Sup. Ct. 1995), aff’d, 637 N.Y.S.2d 110 (N.Y. App. Div. 1996) (where the former employees had unique relationships—that would take at least six months for a new employee to build—with the customers developed at the former employer’s expense).

158. See, e.g., Windshield Installation Network v. Goudreau, 654 N.Y.S.2d 442 (N.Y. App. Div. 1997) (enforcing a restrictive covenant against an independent contractor); Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903, 906 (N.Y. App. Div. 1992) (noting that independent contractors can be bound by restrictive covenants).

159. Windshield Installation Network v. Goudreau, 654 N.Y.S.2d 442 (N.Y. App. Div. 1997); Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903 (N.Y. App. Div. 1992) (noting that for the purposes of restrictive covenants, independent contractors and at-will employees are the same, and as a result, a continuing relationship is adequate consideration to support the enforcement of a restrictive covenant against an independent contractor).

160. New York Rules of Prof’l Conduct R. 5.6(a) (2009); see also Model Rules of Prof’l Conduct R. 5.6 (2009) (same).



However, a restrictive covenant may be enforced if it is ancillary to the sale of a legal practice.161

Courts in New York have strictly enforced the prohibition on restrictive covenants in employment or partnership agreements between lawyers.162 The Court of Appeals has ruled that even a monetary penalty can constitute an impermissible restriction of the practice of law.163 The policy underlying this rule is that the general public’s access to the legal system should be unhindered, including the right to choose a lawyer.164

6-5 REMEDIES FOR VIOLATION OF A RESTRICTIVE COVENANT

6-5:1 GenerallyCourts strictly construe restrictive covenants and will not

extend enforcement beyond the literal reading of the contract.165 Ambiguous provisions in such covenants are most often construed against the former employer, as the former employer usually prepared the covenant and had the stronger bargaining position.166

6-5:2 Enforceability of Arbitration AgreementsThe Supreme Court of the United States has determined that

arbitration clauses in employment agreements may be enforceable.167

161. New York Rules of Prof’l Conduct R. 5.6 (b) (2009).162. Denburg v. Parker Chapin Flattau & Klimpl, 624 N.E.2d 995 (N.Y. 1993) (referring to

the similar prohibition from the previously effective New York Lawyer’s Code of Professional Responsibility); Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989) (same).

163. Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989) (a forfeiture-for-compensation clause can constitute an impermissible restriction on the practice of law and was therefore unenforceable).

164. Denburg v. Parker Chapin Flattau & Klimpl, 624 N.E.2d 995, 999-1000 (N.Y. 1993) (noting that the professional responsibility codes preventing a lawyer from entering a restrictive covenant reflect the important public policy of a client’s choice of counsel); Cohen v. Lord, Day & Lord, 550 N.E.2d 410, 411 (N.Y. 1989) (“The purpose of the rule is to ensure that the public has the choice of counsel.”); Judge v. Bartlett, Pontiff, Stewart & Rhodes, P.C., 610 N.Y.S.2d 412, 414 (N.Y. App. Div. 1994) (same).

165. Elite Promotional Mktg., Inc. v. Stumacher, 779 N.Y.S.2d 528, 530 (N.Y. App. Div. 2004) (“A covenant against competition must be construed strictly and should not be extended beyond the literal meaning of its terms.”); see also Gramercy Park Animal Ctr., Inc. v. Novick, 362 N.E.2d 608, 609 (N.Y. 1977) (same).

166. Battenkill Veterinary Equine, P.C. v. Cangelosi, 768 N.Y.S.2d 504, 506 (N.Y. App. Div. 2003).

167. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).

REMEDIES FOR VIOLATION OF A RESTRICTIVE 6-5 COVENANT




In New York, some courts have recognized the applicability of such clauses to restrictive covenants.168 In such cases, arbitrators have the authority to award damages or enjoin individuals from engaging in employment for a period of time.169 While arbitration decisions are subject to review by the courts, the Court of Appeals has stated that arbitration decisions regarding restrictive covenants should not be vacated on public policy grounds.170

6-5:3 Injunctive ReliefOne potential recourse for a former employer who is concerned

that a former employee plans to violate a restrictive covenant is to seek a temporary restraining order. Courts may issue an injunction to prevent a former employee from breaching a restrictive covenant, where the underlying agreement was supported by consideration when made, is reasonable in scope, and is equitable in all other respects171—particularly in cases where a former employee was in possession of a trade secret or confidential information, or that employee’s services were unique or extraordinary.172

168. Sprinzen v. Nomberg, 389 N.E.2d 456, 459-60 (N.Y. 1979) (noting that “by mutual consent of the parties” disputes about enforcement of restrictive covenants can be submitted to arbitration); Pine Street Pediatric Assoc., P.C. v. De Agostini, 570 N.Y.S.2d 740 (N.Y. App. Div. 1991) (affirmed the lower court’s grant of the former employer’s application to confirm an arbitration award upholding the validity of a restrictive covenant).

169. Sprinzen v. Nomberg, 389 N.E.2d 456, 460 (N.Y. 1979) (allowing arbitration awards specifically enforcing the covenants and enjoining former employees); Pine Street Pediatric Assoc., P.C. v. De Agostini, 570 N.Y.S.2d 740 (N.Y. App. Div. 1991).

170. Sprinzen v. Nomberg, 389 N.E.2d 456, 459-60 (N.Y. 1979) (citing Matter of Port Jeffersonson Sta. Teachers Ass’n v. Brookhaven-Comsewogue Union Free School District, 383 N.E.2d 553, 553-54 (N.Y. 1978) (“an arbitrator’s award which specifically enforces [a restrictive covenant] . . . will not be vacated on public policy grounds.” The Court of Appeals explained that arbitration awards enforcing restrictive covenants are not among the “few matters of concern which have been recognized as so intertwined with overriding public policy considerations as to either place them beyond the bounds of the arbitration process itself or mandate the vacatur of awards which do violence to the principles upon which such matters rest.”); see also Pine Street Pediatric Assoc., P.C. v. De Agostini, 570 N.Y.S.2d 740 (N.Y. App. Div. 1991).

171. Delta Enter. Corp. v. Cohen, 940 N.Y.S.2d 43, 43 (N.Y. App. Div. 2012) (where there was evidence that the former employee consulted independent counsel, received $50,000 in consideration, and there were indications of bad faith by the former employee, the restrictive covenant is not unenforceable as a matter of law); Gundermann & Gundermann Ins. v. Brassill, 853 N.Y.S.2d 82 (N.Y. App. Div. 2007) (where a former employer can show a probability of success on the merits, a danger of irreparable harm, and a balance of equities in its favor, an injunction will be granted); Crown IT Servs. v. Koval-Olsen, 782 N.Y.S.2d 708, 712 (N.Y. App. Div. 2004).

172. Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976) (stating that injunctions are enforceable “to the extent necessary to prevent the disclosure or use



6-5:3.1 Preliminary InjunctionsA former employer can seek a preliminary injunction to enforce

a restrictive covenant against a former employee.173 Preliminary injunctions to enforce restrictive covenants may be granted if the employer can demonstrate a likelihood of success on the merits, irreparable injury without injunctive relief, and that the balance of equities is in the former employer’s favor.174 However, preliminary injunctions are typically not granted unless the right to enforce the covenant is clear from the undisputed facts and the resulting injury from a breach would be irreparable.175

6-5:3.2 Permanent InjunctionsA permanent injunction enforcing a restrictive covenant, either

as written or as reformed by the court, will be granted in cases where the agreement was supported by adequate consideration when made, is reasonable in the scope of restraint and is equitable in all other respects.176 To get a permanent injunction, the former employer must show that the former employee’s breach will result in irreparable damage to the business without an injunction because of the nature of the business and the former employee’s connection to that business.177

of trade secrets or confidential customer information [or] . . . where an employee’s services are unique or extraordinary and the covenant is reasonable.”); Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504 (N.Y. App. Div. 2003) (to get an injunction the former employer had to show that the former employee “improperly appropriated its customer list or used confidential client information.”).

173. Delta Enter. Corp. v. Cohen, 940 N.Y.S.2d 43, 43 (N.Y. App. Div. 2012) (seeking an injunction preventing the former employee from breaching a restrictive covenant); Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504 (N.Y. App. Div. 2003) (same).

174. Delta Enter. Corp. v. Cohen, 940 N.Y.S.2d 43 (N.Y. App. Div. 2012) (outlining the requirements for a preliminary injunction); Sutherland Global Servs., Inc. v. Stuewe, 902 N.Y.S.2d 272, 273-74 (N.Y. App. Div. 2010) (same); Battenkill Veterinary Equine P.C. v. Cangelosi, 768 N.Y.S.2d 504 (N.Y. App. Div. 2003) (same).

175. Orkin Exterminating Co. v. Dayton, 527 N.Y.S.2d 883, 884 (N.Y. App. Div. 1988) (“Within the context of enforcement of a noncompetition clause, the motion [for a preliminary injunction] should be granted only where the right is plain from the undisputed facts.”); see also Gundermann & Gundermann Ins. v. Brassill, 853 N.Y.S.2d 82, 83-84 (N.Y. App. Div. 2007); TMP Worldwide Inc. v. Franzino, 703 N.Y.S.2d 183, 184 (N.Y. App. Div. 2000) (a preliminary injunction will not be granted where the former employer simply makes “conclusory” assertions of entitlement to enforcement of a restrictive covenant).

176. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63 (2d Cir. 1999).177. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 68-69 (2d Cir. 1999); Willis of N.Y., Inc. v.

DeFelice, 750 N.Y.S.2d 39, 42 (N.Y. App. Div. 2002).





The inclusion of a liquidated damages clause in a restrictive covenant does not automatically prevent the issuance of an injunction.178

6-5:4 Damages

6-5:4.1 CalculationThe most common means of calculating the damages owed

to a former employer from a breach of a restrictive covenant is to compute the net profit the former employer was deprived of by the improper competition by the former employee.179 In one case where a former employer was unable to prove damages, the former employer was still able to recover nominal damages where it established a breach of the agreement.180

The agreement may also discuss the damages in the event of a breach. An agreement that requires an employee to pay “all compensation, profits, monies, accruals or other benefits received . . .” is enforceable as to that measure of damages.181 While these formulas are a guidepost, the damages to the former employer need not be proven with mathematical certainty.182

6-5:4.2 Liquidated Damages ClausesEmployment agreements with restrictive covenants may contain

liquidated damages clauses. A liquidated damages clause is “‘an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement.’”183 A liquidated damages clause

178. Karpinski v. Ingrasci, 268 N.E.2d 751, 755 (N.Y. 1971); Crown IT Servs. v. Koval-Olsen, 782 N.Y.S.2d 708, 711 (N.Y. App. Div. 2004). See infra § 6-5:4.2, for a general discussion of liquidated damages clauses in restrictive covenants.

179. See Earth Alterations, LLC v. Farrell, 800 N.Y.S.2d 744, 745 (N.Y. App. Div. 2005) (noting that the former employer met its burden in proving net loss of profits due to competition by the former employee); Pencom Sys., Inc. v. Shapiro, 598 N.Y.S.2d 212 (N.Y. App. Div. 1993) (noting that the proper measure of damages is “the net profit of which plaintiff was deprived by reason of defendant’s improper competition with plaintiff.”); Support Sys. Assocs., Inc. v. Tavolacci, 522 N.Y.S.2d 604, 606 (N.Y. App. Div. 1987) (same).

180. Meteor Indus. v. Metalloy Indus., 539 N.Y.S.2d 972 (N.Y. App. Div. 1989).181. World Auto Parts, Inc. v. Labenski, 689 N.Y.S.2d 582, 583 (N.Y. App. Div. 1999).182. Special Prods. Mfg., Inc. v. Douglass, 564 N.Y.S.2d 615, 616 (N.Y. App. Div. 1991);

Borne Chem. Co. v. Dictrow, 445 N.Y.S.2d 406, 413-14 (N.Y. App. Div. 1981).183. Crown IT Servs., Inc. v. Koval-Olsen, 782 N.Y.S.2d 708, 712 (N.Y. App. Div. 2004) (quoting

Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 361 N.E.2d 1015, 1018 (N.Y. 1977)).



may be enforced if it was a reasonable estimate of the anticipated loss at the time that the agreement was negotiated and executed.184 However, if the liquidated damages are grossly disproportionate to the probable loss, such provision will not usually be enforced.185

6-5:5 Partial EnforcementA court’s fact-intensive analysis to determine whether to enforce

a restrictive covenant may result in only a portion of a restrictive covenant being found reasonable. For example, the restriction may be reasonable as to time and area, but not as to scope of activities covered,186 or the covenant may be reasonable in duration, but unreasonable in geographic area.187 Courts in New York have reserved the power to partially enforce a restrictive covenant in certain circumstances.188

Courts can now “sever” the unreasonable or overbroad portion of a restrictive covenant and uphold the covenant to the extent the remaining provisions are reasonable.189 This approach allows courts to consider the best interests of all of the parties and the general public, and requires a case-specific analysis.190 This

184. Crown IT Servs., Inc. v. Koval-Olsen, 782 N.Y.S.2d 708, 712 (N.Y. App. Div. 2004) (finding that a liquidated damages clause was enforceable because it “was a reasonable estimate at the time the contract was negotiated and executed.”).

185. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1227-28 (N.Y. 1999) (noting that whether a clause is grossly disproportionate to the actual damages is a matter to be determined by a review of the record, and simple averments that the clause is not grossly disproportionate is inconclusive); Clubb v. ANC Heating & Air Conditioning, 675 N.Y.S.2d 176, 178 (N.Y. App. Div. 1998) (refusing to enforce a liquidated damages clause that was grossly disproportionate); Curtis v. Amela-Bouyea, 525 N.Y.S.2d 69, 71 (N.Y. App. Div. 1988) (where a liquidated damages clause bears “no reasonable relationship to the probable loss” and the losses are not difficult to calculate, the clause will not be enforced).

186. Karpinski v. Ingrasci, 268 N.E.2d 751 (N.Y. 1971).187. Baker’s Aid v. Hussmann Foodserv. Co., 730 F. Supp. 1209, 1216 (E.D.N.Y. 1990). 188. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (courts have the power

to sever and grant partial enforcement of an overbroad restrictive covenant); Karpinski v. Ingrasci, 268 N.E.2d 751, 755 (N.Y. 1971) (same); see, e.g., Weiser LLP v. Coopersmith, 902 N.Y.S.2d 74, 77 (N.Y. App. Div. 2010) (finding that even though the covenant was overbroad it could be partially enforced).

189. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (analyzing the New York law on the concept of judicial severance of a partially unreasonable restrictive covenant); Karpinski v. Ingrasci, 268 N.E.2d 751, 755 (N.Y. 1971).

190. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (stating that when “the unenforceable portion is not an essential part of the agreed exchange, a court should conduct a case specific analysis, focusing on the conduct of the employer in imposing the terms of the agreement.”); Weiser LLP v. Coopersmith, 902 N.Y.S.2d 74, 77 (N.Y. App. Div. 2010) (partially enforcing the covenant “upon consideration of the equities and the record”); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 472-73 (N.Y. App. Div. 2008).





analysis is focused on the conduct of the employer in the making of the original covenant, including whether there is an absence of overreaching by the former employer, no coercive use of a dominant bargaining position, and no other misconduct.191

Courts can pare the unreasonable restraint down to the appropriate size and enforce that restraint.192 Courts retain the power to alter a restriction to limit which customers can be served or solicited, and courts can modify the type of business activity in which the former employee may engage following the end of the relationship.193

6-6 DEFENSES TO ENFORCEMENTBeyond challenging the reasonableness of the covenant or the

interests the employer is attempting to protect, former employees may raise the following defenses to enforcement of restrictive covenants:

1. Expiration of the statute of limitations;194

2. Lack of jurisdiction;195

3. Waiver;196

4. Lack of consideration;197

191. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (“If the employer demonstrates an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct, but has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing, partial enforcement may be justified.”); Ashland Mgmt. Inc. v. Altair Invs. N.A., LLC, 869 N.Y.S.2d 465, 472 (N.Y. App. Div. 2008) (same).

192. Baker’s Aid v. Hussmann Foodserv. Co., 730 F. Supp. 1209, 1216 (E.D.N.Y 1990); BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226 (N.Y. 1999) (noting that a court can sever the portions of a restrictive covenant that are overbroad); Karpinski v. Ingrasci, 268 N.E.2d 751, 754-55 (N.Y. 1971); Ashland Mgmt. Inc. v. Altair Inv. N.A., LLC, 869 N.Y.S.2d 465 (N.Y. App. Div. 2008) (recognizing that a court can sever an unreasonable duration term by reducing it to a more reasonable one).

193. BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) (narrowing the class of customers to whom the covenant was enforced against); Karpinski v. Ingrasci, 268 N.E.2d 751 (N.Y. 1971) (narrowing the scope of activity covered by the covenant); Ashland Mgmt. Inc. v. Altair Inv. N.A., LLC, 869 N.Y.S.2d 465 (N.Y. App. Div. 2008) (limiting duration).

194. See infra § 6-6:1.195. See infra § 6-6:1.196. See infra § 6-6:2.197. See infra § 6-6:3.


DEFENSES TO ENFORCEMENT 6-6


5. Unconscionability of the agreement;198 or

6. An employee’s involuntary discharge without cause.199

6-6:1 Statute of Limitations and Jurisdiction IssuesThe statute of limitations applicable to actions for a breach

of a noncompete clause or agreement is the six-year limitation applicable to breach of contract actions.200

Where a defendant allegedly misappropriates a trade secret, some courts have noted that the defendant becomes liable to the plaintiff upon the first disclosure.201 However, where the defendant uses the trade secret to his own “commercial advantage,” rather than disclosing the trade secret publicly, each subsequent use may constitute a new tort to toll the limitations period.202

As a breach of an agreement not to compete is governed by state or common law, federal courts will usually only exercise jurisdiction over the action when the parties satisfy the diversity requirements of 28 U.S.C. § 1332.203

6-6:2 WaiverWhere the former employer is responsible for a former employee’s

breach of a restrictive covenant, the employer cannot later attempt to enforce the covenant.204 However, an employer’s history

198. See infra § 6-6:4.199. See infra § 6-6:5.200. Thaler v. Skydell, 541 N.Y.S.2d 420, 421 (N.Y. App. Div. 1989).201. Lemelson v. Carolina Enters., Inc., 541 F. Supp. 645, 659 (S.D.N.Y. 1982) (noting that

in New York the rule is that where a former employee misappropriates and discloses a trade secret, the former employee became liable upon disclosure).

202. Lemelson v. Carolina Enters., Inc., 541 F. Supp. 645, 659 (S.D.N.Y. 1982) (also noting, that where the trade secret is kept confidential, but the former employee uses the trade secret to his commercial advantage, then each use constitutes a “new, actionable tort for the purpose of the running of the Statute of Limitations.”).

203. See, e.g., Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22, 30 (S.D.N.Y. 2010) (as restrictive covenants are governed by state law, the case could only proceed because there was diversity jurisdiction); Sarfraz v. Vohra Health Servs., P.A., 663 F. Supp. 2d 147, 151 (E.D.N.Y. 2009) (jurisdiction over an action seeking a declaratory judgment regarding the enforceability of a restrictive covenant was proper where the plaintiffs alleged an amount in controversy over $75,000).

204. International Shared Servs., Inc. v. McCoy, 686 N.Y.S.2d 828, 829 (N.Y. App. Div. 1999) (where a former employer pledged to aid a former employee in seeking subsequent employment, and put the former employee in touch with competitors, the former employer waived its right to enforce the restrictive covenant); Horne v. Radiological




of nonenforcement of restrictive covenants typically will not constitute a waiver of such covenants.205 If an employee resigns in reliance on the history of nonenforcement of restrictive covenants by the former employer, the former employer may be estopped from enforcing the covenant.206

6-6:3 Lack of ConsiderationAn agreement not to compete must usually be supported

by consideration in order to be valid.207 However, as noted in Section 6-3:5.2, an employer’s continued employment of the employee may provide sufficient consideration.208

6-6:4 UnconscionabilityUsually both procedural and substantive unconscionability must

be established for courts in New York to find that an agreement will not be enforced.209 Procedural unconscionability is where a party entering a contract did not have a “meaningful” choice.210 Substantive unconscionability requires a showing that the

Health Servs., P.C., 371 N.Y.S.2d 948, 960 (N.Y. Sup. Ct. 1975), aff’d, 379 N.Y.S.2d 374 (N.Y. App. Div. 1976).

205. Horne v. Radiological Health Servs, P.C., 371 N.Y.S.2d 948, 960 (N.Y. Sup. Ct. 1975), aff’d, 379 N.Y.S.2d 374 (N.Y. App. Div. 1976) (waiver of the enforcement of restrictive covenants to certain former employees on a case-by-case basis does not preclude a former employer from seeking to enforce a restrictive covenant against a subsequent employee).

206. Horne v. Radiological Health Servs, P.C., 371 N.Y.S.2d 948, 961 (N.Y. Sup. Ct. 1975), aff’d, 379 N.Y.S.2d 374 (N.Y. App. Div. 1976).

207. Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903, 906 (N.Y. App. Div. 1992) (stating, “restrictive covenants are, first and foremost, contracts. As with any contract, the promise not to compete must be supported by adequate consideration on the part of the promisee.”).

208. Iannucci v. Segal Co., No. 06-cv-4720, 2006 U.S. Dist. LExIS 43339 (S.D.N.Y. June 26, 2006) (noting that New York law is clear that an employer’s forbearance of their right to terminate an employee at any time is adequate consideration for a restrictive covenant); Gazzola-Kraenzlin v. Westchester Med. Grp., P.C., 782 N.Y.S.2d 115 (N.Y. App. Div. 2004) (an employer’s continued employment of the former employee after the end of the termination date contained in a contract constituted sufficient consideration); Zellner v. Stephen D. Conrad, M.D., P.C., 589 N.Y.S.2d 903 (N.Y. App. Div. 1992) (noting that continued retention of an independent contractor is sufficient consideration); Arthur Young & Co. v. Galasso, 538 N.Y.S.2d 424 (N.Y. Sup. Ct. 1989) (discussing that financial benefits and certain intangibles such as increased knowledge, skill, or status provided to an employee may constitute sufficient consideration).

209. Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824, 828 (N.Y. 1988) (setting forth the elements of unconscionability); Lawrence v. Miller, 853 N.Y.S.2d 1, 5 (N.Y. App. Div. 2007) (same).

210. Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824, 828 (N.Y. 1988); Lawrence v. Miller, 853 N.Y.S.2d 1, 5 (N.Y. App. Div. 2007).


DEFENSES TO ENFORCEMENT 6-6


contract terms are “unreasonably favorable” to the other party to the contract.211

In the context of restrictive covenants, the same analysis has been used.212 That a contract containing a restrictive covenant was offered to a former employee on a “take it or leave it” basis is not usually sufficient alone to void the contract; the employee must also show the absence of a meaningful choice.213 Additionally, because courts conduct a reasonableness analysis in determining whether a noncompete clause should be enforced, there can be some overlap between that analysis and the substantive aspect of unconscionability.214

6-6:5 Effect of Employee’s Involuntary Discharge Under a Contract

One federal court sitting in New York has found that usually “courts will not enforce a non-competition provision in an employment agreement where the former employee was involuntarily terminated.”215 Specifically, when an at-will employee subject to a restrictive covenant is involuntarily discharged without cause the “mutuality of obligation on which a covenant not to compete is based” would be destroyed.216 If a former employee has been discharged with cause, however, the covenant may still be enforced.217

Recall, as discussed above at § 6-3:3.2b, that the employee choice doctrine will not be invoked to uphold a restrictive covenant forfeiting deferred compensation for a former employee’s competition in violation of the covenant in circumstances where the employee is involuntarily discharged without cause.218

211. Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824, 828 (N.Y. 1988); Lawrence v. Miller, 853 N.Y.S.2d 1, 5 (N.Y. App. Div. 2007).

212. Carvel Corp. v. Rait, 503 N.Y.S.2d 406, 410-11 (N.Y. App. Div. 1986) (discussing whether a particular restrictive covenant was procedurally and substantively unconscionable, and ultimately deciding that it was not).

213. Carvel Corp. v. Rait, 503 N.Y.S.2d 406, 410-11 (N.Y. App. Div. 1986) (conclusory allegations are not enough to support a claim that there was a lack of meaningful choice).

214. Carvel Corp. v. Rait, 503 N.Y.S.2d 406, 410-11 (N.Y. App. Div. 1986).215. SIFCO Indus. Inc. v. Advanced Plating Technologies, Inc., 867 F. Supp. 155, 158

(S.D.N.Y. 1994).216. Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22, 41-42 (S.D.N.Y. 2010). 217. J. H. Goldberg Co. v. Stern, 385 N.Y.S.2d 427 (N.Y. App. Div. 1976).218. Morris v. Schroder Capital Mgmt. Int’l, 859 N.E.2d 503 (N.Y. 2006); Post v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 397 N.E.2d 358 (N.Y. 1979).




6-7 OTHER ISSUES RELATED TO RESTRICTIVE COVENANTS

6-7:1 Tortious InterferenceThird parties that hire a former employee subject to a restrictive

covenant without knowledge of the covenant may be immune from liability under an intentional interference with contract cause of action.219

Additionally, where a former employer successfully pursues a cause of action against the former employee for breach of a restrictive covenant, the former employer may be foreclosed from also pursuing a cause of action for tortious interference with contractual relations based on the same agreement.220

6-7:2 AntitrustFederal Courts sitting in New York have rejected arguments that

restrictive covenants are per se221 violations of the Sherman Act.222 Additionally, because of the reasonableness analysis conducted by courts to determine whether a restrictive covenant should be enforced, at least one court has found that the covenant necessarily meets the rule of reason under the Sherman Act.223 Inasmuch as New York’s Donnelly Act224 is “modeled after the Sherman Act . . . .”,225 a similar argument that a restrictive covenant per se violates the Donnelly Act could also be expected to fail.

219. Anderson Props., Inc. v. Sawhill Tubular Div., Cyclops Corp., 540 N.Y.S.2d 82, 83 (N.Y. App. Div. 1989) (stating that where a third party had no knowledge of the restrictive covenant, the former employer could not show “the essential elements” of an intentional interference claim).

220. Mallory Factor Inc. v. Schwartz, 536 N.Y.S.2d 752, 754 (N.Y. App. Div. 1989).221. Some restraints on competition, “because of their ‘pernicious effect on competition

and lack of any redeeming virtue are conclusively presumed to be unreasonable.’” Bradford v. N.Y. Times Co., 501 F.2d 51, 60 (2d Cir. 1974) (internal citations omitted).

222. Sherman Antitrust Act, 15 U.S.C. §§ 1-7 (2012); Bradford v. N.Y. Times Co., 501 F.2d 51, 59 (2d Cir. 1974).

223. Baker’s Aid v. Hussmann Foodserv. Co., 730 F. Supp. 1209, 1217 (E.D.N.Y. 1990). 224. Donnelly Act, N.Y. Gen. Bus. L §§ 340-347 (2012). 225. Venture Tech. Inc. v. Nat’l Fuel Gas Co., 685 F.2d 41, 42 n.1 (2d Cir. 1982).


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