Appellate court refuses to enforce non-compete contract

Non-compete agreements are often used by employers in New York and elsewhere to ensure that former employees cannot accept employment from competitors and then solicit the former firm’s customers. A recent decision by the Appellate Division of the New York Supreme Court now casts doubt on whether such agreements can be enforced against employees who are terminated without cause. The widespread use of non-compete agreements makes this case a critical issue in employee and employer representation.

The case arose when Buchanan Capital Markets, LLC, a financial services firm, terminated several employees when the company was sold. The terminated employees, all of whom were principals, were given the opportunity to reapply for employment with the purchasing firm. The employees had all signed non-compete and non-solicitation agreements with their former employer, and the agreements extended for two years following termination of employment. The terminated employees refused the chance to reapply and instead accepted employment with a competitor.BCM sued to enforce the non-compete and non-solicitation covenants.

BCM sought a preliminary injunction against the employees and their new employer, but the trial court ruled that it was not entitled to an injunction because it could not demonstrate a likelihood that it would succeed on the merits of its claim. The trial court and the appellate court both concluded that the non-compete agreements were unenforceable because, when employees were terminated without cause, the employer could not demonstrate a continuing willingness to employ the terminated employees.

This case is significant for both employers and employees. An employer cannot assume that its non-compete agreement will be enforced against employees who are terminated without cause. Employees who are terminated without cause have reason to expect that their non-compete agreements cannot be enforced.

Source: mondaq, “New York Appellate Court Declines To Enforce Noncompetes Against Employees Terminated Without Cause,”Saima Z. Sheikh, Feb. 27, 2017