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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.