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Partial Enforcement of Non-Compete Still a Risky Proposition

Earlier this week, I wrote an article on our firm’s website about some recent developments regarding partial enforcement of restrictive covenants:  New York Employers Could Soon Have More Difficulty Enforcing Restrictive Covenants.  The article was primarily based upon a Fourth Department case of Brown & Brown, Inc. v. Johnson, a case that was recently argued at the New York Court of Appeals.  Yesterday, the Court of Appeals decided the case.  You can read the decision here.

This weekend, I will write a more extensive update about the case on our firms’ website, but there are still a few interesting takeaways to note.

Although partial enforcement under New York law was one of the issues under review, the threshold issue addressed by the Court of Appeals was whether or not to apply a Florida choice-of-law provision.  The Appellate Division held that New York law should apply, and the Court of Appeals affirmed that part of the ruling.  After an extensive review, comparing the laws of the two states on this issue, the Court held:

Considering Florida’s nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee–in contrast with New York’s requirements that courts strictly construe restrictive covenants and balance the interests of the employer, employee and general public–defendants met their “‘heavy burden’ of proving that application of Florida law [to the non-solicitation provision of the parties’ agreement] would be offensive to a fundamental public policy of this State.”

There have been a number of occasions where I have reviewed non-compete agreements containing choice-of-law provisions from Florida or other more “employer-friendly” states.  From now on, it seems very unlikely that such a provision would be enforced absent some significant distinguishing set of circumstances.  Employers wishing to enforce restrictive covenants in New York should narrowly tailor them to meet the requirements for enforceability under New York law.

On the issue of partial enforcement, the Court of Appeals reversed the decision of the Appellate Division.  But, the Court did so because it believed there were issues of fact that raised questions about whether the employer engaged in overreaching or used coercive dominant bargaining power to obtain the restrictive covenant at issue.  That issue was remanded back to the lower courts for further proceedings.  Partial enforcement is not assured, and employers should be concerned about the apparent trend by courts to decline to partially enforce over-broad restrictive covenants.

Capicola Confidential: Secrets of the Sandwich-Maker

BLTI’ve never eaten at Jimmy John’s, but they must have some incredible sandwiches, made with either top secret ingredients or through a confidential process (or both!).  It turns out that this sandwich chain requires its hourly workers to sign non-compete agreements, prohibiting its employees from working for a competitor for two years(!) after leaving Jimmy John’s.  I don’t know how I missed that, but it was apparently widely reported back in October, in Business Insider and the New York Times, among other publications.

According to the New York Times article, this isn’t really all that uncommon, as more and more employers are requiring low- and moderate-wage workers to sign these agreements. But, it seems to me very unlikely that these agreements would be enforceable in New York.  Plus, given the expense of enforcement, it is doubtful that any employer would truly think it worth the cost of litigating these agreements.  But, a low-wage under threat of litigation and unable to afford a lawyer to defend them in such an action may not know that, and feel trapped in their current job.

In New York, these agreements are more common among professionals, executives, and higher-paid salespersons with access to confidential business-related information.  And, even in those situations enforcement is not a sure thing.  Restrictive covenants in employment—also referred to as non-compete clauses—are generally not favored, and will be enforced by the courts only to the extent they are reasonable and necessary to protect legitimate business interests, such as the protection of an employer’s trade secrets or confidential customer lists, or protection from an employee whose services are unique or extraordinary. Courts have also held that employers have a legitimate interest in preventing former employees from exploiting the goodwill of a client or customer, which had been created and maintained at the employer’s expense, to the employer’s competitive detriment.  What legitimate interest would a sandwich chain have to justify preventing one of its sandwich-makers from leaving and working for a competitor?

This may all be moot if Congress passes the Mobility and Opportunity for Vulnerable Employees (MOVE) Act (not to be confused with the Military and Overseas Voter Empowerment Act).  According to the press release issued by one of the sponsors, the legislation:

will enable low-wage workers to seek higher-paying jobs without fearing legal action from their current employer.  The MOVE Act will ban the use of non-compete agreements for employees making less than $15 an hour, $31,200 per year, or the minimum wage in the employee’s municipality, and will require employers to notify prospective employees that they may be asked to sign a non-compete agreement.

According to the press release, it is estimated that 8-15% of low-wage workers are asked to sign non-compete agreements in an effort to dissuade those workers from seeking better, higher-paying jobs within the same industry. Although such agreements in these contexts may ultimately prove to be unenforceable in many jurisdictions, passage of the MOVE Act would remove any doubt with respect to these employees.

For more information about restrictive covenants and some recent developments in New York law, I invite you to read the latest posting on our firm’s website: New York Employers Could Soon Have More Difficulty Enforcing Restrictive Covenants.

Another Reason to Exercise Care With E-Mail

Dojang from KoreaAn appellate court in New York recently decided a case that serves as yet another reminder to be careful when sending an email.  In Forcelli v. Gelco Corp., 109 A.D.3d 244 (2d Dep’t 2013), the Appellate Division, Second Department, held that an email message satisfied the statutory criteria for a binding and enforceable stipulation of settlement.  While it is not surprising that parties can form a contract by email, it is somewhat surprising that the court here held that, under the facts of this case, an email constituted a stipulation of settlement in the absence of a handwritten signature.

In Forcelli, a personal injury action arising out of a multi-party automobile accident, the plaintiff’s attorney and the insurance adjuster reached an agreement regarding settlement following an unsuccessful mediation involving all the parties.  After agreeing on the amount of the settlement, the adjuster sent an email to plaintiff’s attorney, confirming that the plaintiff’s attorney accepted the adjuster’s offer of $230,000 during their telephone conversation, and further noting that the parties agreed that the plaintiff’s attorney would have his client sign the medicaid form and a general release and stipulation of discontinuance.

The next day, the plaintiff signed the release, but before it was forwarded to the insurance adjuster, the trial court granted the defendants’ motion for summary judgment, which resulted in the dismissal of the plaintiff’s complaint.  When the defense attorney learned that the settlement papers had been received by the insurance adjuster, the defense attorney sent a letter to the plaintiff’s attorney rejecting the settlement papers, claiming that there was no settlement consummated between the parties in accordance with the statutory requirements for stipulations of settlement.  Thereafter, the plaintiff’s attorney filed a motion, seeking to vacate the summary judgment order of dismissal.  That motion was granted, resulting in this appeal.

Where a settlement is not made in open court, the civil practice law and rules provide that a settlement agreement will not be binding “unless it is in a writing subscribed by [the party] or his attorney.”  Also, since settlement agreements are subject to the principles of contract law, all material terms must be set forth and there must be a manifestation of mutual assent in order for the agreement to be enforceable.

After noting that courts have “long recognized that traditional correspondence can qualify as an enforceable stipulation of settlement”, the Appellate Division discussed the issue of whether an email could be “subscribed” because it cannot be “signed in the traditional sense.”  In analyzing this issue, the court first noted that two other departments have held that emails could constitute signed writings satisfying the requirements of a stipulation of settlement.  The court then observed that “given the now widespread use of email as a form of written communication in both personal and business affairs, it would be unreasonable to conclude that email messages are incapable of conforming to the criteria of [the civil practice law and rules] simply because they cannot be physically signed in a traditional fashion.”  Finally, after noting that this conclusion is buttressed by reference to the New York State Technology Law, the court held:

[W]here, as here, an email message contains all material terms of a settlement and a manifestation of mutual accord, and the party to be charged, or his or her agent, types his or her name under circumstances manifesting an intent that the name be treated as a signature, such an email message may be deemed a subscribed writing within he meaning of [the civil practice law and rules] so as to constitute an enforceable agreement.

However, one factor that the court considered here was the fact that the insurance adjuster ended with the expression “Thanks,” followed by the insurance adjuster’s full type-written name.  The court noted that, “This indicates that the author purposefully added her name to this particular email message, rather than a situation where the sender’s email software has been programmed to automatically generate the name of the email sender, along with other identifying information, every time an email message is sent.”  Thus, whether or not there is a subscribed writing in a future case may very well depend on whether the author actually typed his or her name, or simply used an automatically-generated email “signature.”

As I read about this case, I couldn’t help but wonder how far we’ve come from the days of wax seals.  Now, you do not even need an actual hand-written signature for a subscribed writing.  But, I still like the custom-made dojang that my wife brought me back from her trip to Korea last summer.  These are “seals” often affixed to official documents in Korea.  If you look closely in the picture above, you can see my name carved in the seal, along with what I believe to be my name written in Hangul.  Too bad I won’t need it to confirm any stipulations of settlement.

 

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