How Restricting Are Restrictive Covenants & Do They Hold Up In Court?
- August 5, 2019
It is not uncommon for doctors, insurance brokers, accountants, salespeople and countless other types of employees to be required to sign non-competition and/or non-solicitation agreements (or “restrictive covenants”) in connection with their hiring or continued employment. Additionally, businesses or business partners may also enter these types of arrangements when joining forces. But how well do these documents stand up in court?
Restrictive Covenants are important tools for businesses and employers because they protect legitimate business interests (e.g., customers/good will, staff, contractual relationships and proprietary or confidential information) both during and after the employment or business relationship terminates.
At the same time, Restrictive Covenants are disfavored by the law because they attempt to limit a person’s ability to work in their career or field and earn a living. Consequently, the attorney’s ability to draft the Restrictive Covenant well (on the front end) and the attorney’s ability to enforce the Restrictive Covenant successfully (on the back end) is critical. At SDG, we have both a strong transactional team to set your business up for success and a strong litigation team to save your business from disaster.
Stenger, Glass, Hagstrom, Lindars & Iuele LLP recently represented a local communication company seeking to enforce a non-solicitation agreement after terminating a sales representative for cause . The defendant however argued that he was fired “without cause”. In New York, restrictive covenants are unenforceable upon a termination without cause. The defendant also argued that his ability to work would be unreasonably restricted by the non-solicitation provision.
A SDG Attorney was successful in obtaining a Temporary Restraining Order and Preliminary Injunction, which enforced the non-solicitation provision, barring any client solicitation, client contact or diversion of a client’s business for the duration of the lawsuit, which could last from several months to over a year. “In order to obtain a temporary restraining order and preliminary injunction, the employer needs to sufficiently demonstrate the ‘likelihood of success on the merits of the case’ right at the outset. Only then will a court go so far as to give the employer the ultimate relief it seeks (the restraint on solicitation or competition) before the case litigated through to the end. Obtaining that temporary restraint can be difficult to do, especially when there are disputed issues of fact, like whether the firing was ‘for cause’ or ‘without cause’, as is the issue with this case” informs a Litigation Attorney, Stenger, Glass, Hagstrom, Lindars & Iuele LLP.
Making this case particularly challenging was the lack of certain forms of documentary evidence at the outset that could have reinforced the employer’s case. “In any case, the lawyer hopes that strong documentary evidence exists, whether it takes the form of a properly drafted and executed contract or meticulous business records from the client, and so on. In the absence of strong documentation, strong lawyering must fill in the blanks”.
To date, the court has maintained a preliminary injunction in favor of the employer that restrains the former employee from contacting, soliciting the business of, or diverting the business of any present customers, its subsidiaries or affiliates, either directly or indirectly.