Restrictive covenants, in which an employee agrees for a certain period of time to refrain from working for a competitor or from soliciting away the company’s clients or employees, have become commonplace. Companies in industries from finance to consumer products routinely request such covenants. Some states, including California, Florida, Georgia and Texas, have statutes governing the enforceability of restrictive covenants; others rely exclusively on common law.Generally, for a restrictive covenant to be enforceable, it must be tailored – in geographic, temporal and subject matter scope – to protect a company’s legitimate business interests. Interests worthy of protection include: (i) trade secrets; (ii) client relationships developed at the company’s expense; and (iii) an employee who provides “unique” or “extraordinary” services or skills. It is time to focus on that forgotten category: the “unique” or “extraordinary” employee.
What Makes An Employee “Unique” Or “Extraordinary”?
There was a time when uniqueness was reserved for “musicians, professional athletes, actors and the like” where “one can fairly say that nature made them and then broke the mold.” Ticor Title Ins. v. Cohen, 173 F.3d 63 (2d Cir. 1999). To be “unique,” one had to be in the rarefied air of Michael Jordan.
For example, in Shubert Theater Co. v. Gallagher, 206 A.D. 514, 518 (1st Dep’t 1923), the court’s analysis of “uniqueness” turned on whether the vaudeville actors at issue were “ordinary vaudeville performers, easily replaceable and not at all unique.” There, the court enjoined the actors (the famous comedy team of Gallagher and Shean: you remember them, right?) from performing for another company, finding that they were among the “headliners” in the field and that their “talent [was] peculiar and unique.”
Vaudeville is gone. So too is that historical rule. Now, an employee doesn’t need to “Be Like Mike” to be unique:
- An information technology employee was “unique” through the “special value” he provided “in his relationships with Microsoft personnel, cultivated partially through the use of his expense account while employed by plaintiff.” Henson Group, Inc. v. Stacy, 66 A.D.3d 611, 612 (1st Dep’t 2009). Unlike those vaudeville headliners, everybody acknowledged that the “technical services he performed could have been done by others.”
- A pair of project managers at a communications firm provided unique services in supervising the production of “‘multi-media’ shows” at corporate meetings for firm clients. Contempo Commc’ns., Inc. v. MJM Creative Servs., Inc., 182 A.D.2d 351, 354 (1st Dep’t 1992). Although Nolin and Wolkowitz may have produced a mean PowerPoint presentation, their “uniqueness” does not invoke memories of Rodgers and Hammerstein.
- Even car salesmen may be unique. A Florida appellate court enforced Courtesy Toyota’s two-year ban on soliciting former co-workers; the car dealership had a protectable interest in preventing the loss of salespersons whom they had taught the “Courtesy way of selling cars.” Balasco v. Gulf Auto Holding, Inc., 707 So. 2d 858, 860 (Fla. 2d DCA 1998).
In light of this recent trend, companies would be well served to consider “uniqueness” to include even the current Philadelphia 76ers as well as Hall of Famers like Michael Jordan. That “other” Michael Jordan in your company – the sales representative or tech professional – may indeed be providing unique services, even if he or she can’t drive to the basket or hit the game winning jump shot.
This, moreover, should not be an afterthought but a strategy.
First, companies should refine their vision of uniqueness. Ticor Title Ins. v. Cohen, 173 F.3d 63 (2d Cir. 1999) tellingly recognized that the uniqueness inquiry “now focuses more on the employee’s relationship to the employer’s business.” (emphasis added). It is not the person alone – compare Michael Jordan as a baseball player and as a basketball player – but the person in a particular business or professional context that determines uniqueness.
Second, companies should, where appropriate, include an explicit acknowledgment from the employee in the restrictive covenant agreement that he or she provides “unique” or “extraordinary” services (with as much specificity as possible).
Finally, companies should consider choice of law as well. Given that New York has taken the lead in advancing the broadest definition of uniqueness, New York choice of law and forum provisions — where there is a sufficient nexus to the state — are desirable. See Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 172 (S.D.N.Y. 2006) (upholding New York choice of law provision for employee who worked in California, where “the management and control of [the company] is entirely in New York, and a significant portion of [employee’s] responsibilities were centered in New York”).