Case law in New York has historically made it difficult for employers terminating an employee "without cause" to enforce standing non-compete agreements. The Brown & Brown case summary below outlines a departure from what has been viewed as an accepted rule of law in New York state, providing employers an argument for enforcement of restrictive covenants irrespective of the reason for employment termination. At the same time, however, this case also warns against unreasonable, overreaching restrictive covenants, which courts may reject altogether rather than rewrite to permissible limitations.
New York's Fourth Department1 issued a significant decision last month in Brown & Brown, Inc. v. Johnson, which strikes a balance between the rights of employers and employees in the non-compete area.2 Specifically, the Court (1) clarified the legal implications of a "without cause" termination on restrictive covenants which fall outside the "employee choice doctrine";3 and
(2) struck down an entire non-solicitation clause as overbroad, refusing to save any part of the provision through partial enforcement.
Prior to Brown & Brown, courts in New York had routinely, and without notable exception, applied the Court of Appeals' holding in Post v. Merrill Lynch4 to automatically preclude enforcement of non-compete clauses in cases involving a "without cause" employee termination.5 In Brown v. Brown, however, the Court stated that Post did not establish a per se rule of unenforceability in such cases, noting that Post involved the narrow situation where an employee's entitlement to post-employment benefits was conditioned upon compliance with the restrictive covenant (the so-called "employee choice doctrine"). Brown & Brown appears to be a significant departure from what many had viewed as an accepted rule of law in the State of New York, and now provides employers with a strong argument for enforcement of restrictive covenants irrespective of why employment ceased.
At the same time, however, the Fourth Department also issued a stern warning to employers that they must carefully draft their restrictive covenants if they hope to obtain judicial enforcement; any sign of overreaching in the language of the restrictive covenant may serve to nullify the whole provision. InBrown & Brown, the Court unanimously struck down an entire non-solicitation clause because it prevented the ex-employee from soliciting any customer of her former employer regardless of whether she had ever serviced the customer. Despite the fact that the agreement expressly permitted partial enforcement, the Court reasoned that, under the circumstances of the case, partial enforcement would provide an employer with an incentive to "use [its] superior bargaining position to impose unreasonable anti-competitive restrictions, uninhibited by the risk that a court will void the entire agreement, leaving the employee free of any restraint."6 The message of Brown & Brown is clear: do not expect much help from the courts in "redlining" your agreement – either be reasonable in the first instance or run the risk of getting nothing at all.
This case is a mixed bag for employers. While an employer may now be able to enforce restrictive covenants against employees who are terminated "without cause," that same employer now also runs a greater risk of having its agreement discarded altogether by the courts. Employers should consider reviewing and evaluating the reasonableness of language included in their restrictive covenants to minimize the risk that they will be deemed completely unenforceable.