The Fourth Department, an intermediate appellate court in upstate New York, recently entered a novel ruling declaring unenforceable a Florida choice-of-law provision contained in an employment contract applicable to a New York employee. This decision likely will affect how other New York courts approach contractual choice-of-law provisions under similar circumstances (especially when Florida is involved) and influence employer decisions in the drafting of employment contracts.
In Brown & Brown, Inc. v. Johnson (see footnote 1), a Florida company sought to enforce restrictive covenants against a former New York based employee, relying on a contractual provision that called for the application of Florida law to all disputes. The employment contract contained non-solicitation, confidentiality, and employee non-inducement covenants. New York courts typically employ a policy of enforcing contracts in accordance with the parties’ written intent. However, restrictive covenants are generally disfavored in New York based on strong public policy considerations against restraining a person’s livelihood or ability to engage in his or her chosen vocation. By contrast, Florida statutory law specifically and emphatically forbids courts from considering any hardship experienced by a former employee when determining whether a restrictive covenant is reasonable (see footnote 2). Under this background of diametrically opposed policies regarding restrictive covenants and New York’s respect for strict contractual interpretation, the Fourth Department was faced with determining whether to uphold the application of Florida law to claims alleged by a Florida employer against its former New York employee (e.g., breach of non-solicitation, non-inducement, and confidentiality agreements).
Notwithstanding the court’s determination that Florida law bore a “reasonable relationship” to the parties and the employment contract (e.g., the former employee had many contacts with Florida in connection with her employment), it nevertheless concluded that “the Florida choice-of-law provision in the Agreement is unenforceable because it is ‘truly obnoxious’ to New York public policy,” which will not enforce restrictive covenants “unless reasonably necessary to protect the legitimate interests of the employer,” and they are “not unduly harsh or burdensome to the one restrained” (see footnote 3). In its “first impression” decision, the Fourth Department noted that courts in Georgia, Illinois, and Alabama had previously determined that the Florida statute conflicts with the public policy of their states.
The significance of this decision stems from the fact that companies with employees in multiple jurisdictions routinely select for their choice-of-law provision the law of employer-friendly states like Florida, particularly when the new employee works and resides in a state where the law governing restrictive covenants is more employee-friendly (like New York). Although it remains to be seen whether this analysis will be employed elsewhere in New York, given New York’s hostility to restrictive covenants, it is more likely than not that this decision will be given considerable attention and deference.
Companies that employ New York residents will need to be mindful of the analysis employed in Brown & Brown, Inc. v. Johnson when drafting choice-of-law provisions into employment agreements that include restrictive covenants, particularly when there is some nexus to a state like Florida. Thus, it is advisable for companies that rely on employment contracts to draft restrictive covenants that will past judicial muster in the more employee-friendly state, even if the choice-of-law provision calls for interpretation under the law of a state that is more employer-friendly. Under circumstances, where, as in Brown & Brown, Inc., the relevant states employ a completely divergent approach to analyzing restrictive covenants, an employer who insists on choosing the law of a state hostile to former employees must be prepared factually to demonstrate why that choice of law is reasonable when applied to the particular employee involved, and to convince a court that its application would not lead to unduly harsh results.