I currently work (in NY) for an IL company that has recently lost its "primary client". All employees of this IL company have been notified that as of year's end, when our employment agreements expire, our services will no longer be retained. The "primary client" has since retained the services of another company who in turn wants to recruit some of the original company's employees. The original company promises to file suit against the employees, new company and primary client should any of the recruiting result in future employment. The term of our no compete agreements is for one year, but no geographic area is specified. The only compensation received in exchange for signing the no compete agreement was the job itself. Is it possible for the original company to get this before a judge considering:
1. There is no reasonable business to be lost by the non compete breach as the client was lost prior to any breach?
2. There is no geographical area outlined in the agreement?
3. There was no compensation given or receieved in exchange for the no compete?
4. There are no positions available for any of the employees with the original company?
Is there a way to petition the court in order to find out the legality of this non compete in advance of accepting employment with the new marketing company?
Thank you for your help.
Actually, answering your question is easier than you might think, because, in New York, non-compete clauses in employment agreements are generally not enforceable. You can beat your employer to the courthouse by filing a declaratory judgment action, which would seek to have the clause declared invalid.
One issue that may be relevant is the law applicable to your situation. Because you are employed in New York, I would be inclined to say New York law applies, but you employment agreement might say something different. My answer is based exclusively on my knowledge of New York law. The answer might be different if the law of another state in fact applies.
New York courts tend to disfavor non-compete clauses in employment agreements. They will fairly readily enforce non-competes that are part of the sale of a business, but employees usually win the cases involving employment non-competes. The reason employment non-competes are disfavored is because they tend to deny people the ability to make a living and advance in the field they are best qualified to work. Sometimes court will relate back their concerns to the 13th Amendment, which outlawed slavery.
There are excepts to this general tendency of New York courts. A court might enforce an employment non-compete to the extent needed to protect the employer's proprietary information, such as trade secrets, or very difficult to construct customer lists. Courts might enforce employment non-competes in which the employee is compensated for the time the employee is out of the market.
It is true that whether you can successfully challenge a non-compete to a degree depends on the wording of the agreement, but my experience is that the wording of the agreement is not usually the critical issue. The more important issues seem to be the nature of the employer's business and the nature of the employees' jobs. The nature of the geographic and product market that the employer serves might also be relevant.
Generally, the longer the term of the non-compete, and the broader the geographic market, the less likely a court will enforce a non-compete.
Non-competes have become very common in the IT and health care areas. They also tend to become more common in areas where employers have a hard time holding onto employees because the employers are constantly luring away employees from one another. Their purpose seems to be to lock in employees to one employer, and to how down the salaries of those employees.
Non-competes have become so common in the IT and health care industries that some attorneys will tell employees that it is OK to sign the non-competes because the employer is not likely to enforce the agreement. Although it seems true that employers often decide not to enforce the non-competes, I have to question the integrity of an employer using something they know probably won't work. You can't trust someone like that. I still tell employees that signing an employment agreement is like buying a lawsuit. You'll probably win the lawsuit, but it will still cost you.
Addition by MEL's Moderator, Neil Klingshirn:
Here is a Wiki article on New York non-competition agreements with cases and law:
posted by David M. Lira | Oct 29, 2002 11:53 AM [EST]
The way to find out the legality (or enforceability) of the non-compete before the employer has filed a lawsuit against the employees would be to commence a lawsuit which asks the court for a declaratory judgment.
Practically speaking, it might make sense to wait and see if the company actually tries to enforce it against the employees of the new company. In either case, the court would probably decide that the non-compete was generally enforceable in part and revise the other parts according to the law (for example, duration, geographical scope, etc). But the court might also determine that it should not be enforceable against employees who were terminated for lack of work.
Since I have not reviewed the non-compete and have very limited information, this answer is intended only as general information and not legal advice specific to your situation. No attorney client relationship has been formed by this exchange. If you have additional questions, please contact me directly at (646) 349-3462 to schedule a consultation. For more information about my practice, please visit my website at http://www.kazazian.com.
Nina H. Kazazian
posted by Nina Kazazian | Oct 29, 2002 09:44 AM [EST]