To Compete or Not To Compete

to
compete
to
compete
or
not to compete
or
Jonathan Cooper is, first and foremost, a

husband and father to seven (yes, thats
right - 7) adorable children with whom
he lives in Queens, New York. Less
importantly, he has litigated numerous
cases arising out of non-compete
agreements before New York's courts. He
has even had the privilege of arguing a
case before New York State's highest court
- the Court of Appeals.
not to compete
Jonathan has published hundreds of

articles on the topics related to not only non-compete agreements, but
breach of contract and business torts as well. He has been quoted in the
Wall Street Journal, and some of his other books have been featured by
CNBC. The real public service though, has been Jonathans websites, blogs
and educational videos, which provide a lot of free, useful information
and links on a variety of topics, such as breach of contract, business fraud,
defamation, and the different types of tortious interference claims under
New York law.
The Definitive Insiders Guide to Non-Compete

Agreements in New York
INCLUDING:
Visit Jonathans sites and blogs at:

www.JMCooperLaw.com
www.NYBusinessLitigationLawyer.com
www.NYSmallBusinessAttorney.com
WHEN A NON-COMPETE
UNDER NY LAW
HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS OLD

CLIENTS
WHAT AN EMPLOYER CAN DO WHEN AN EMPLOYEE OR

FORMER EMPLOYEE VIOLATES HIS NON-COMPETE
$16.95
WORD ASSOCIATION
PUBLISHERS
www.wordassociation.com
1.800.827.7903
AGREEMENT
IS
ENFORCEABLE
AND,

THE MOST POWERFUL WAY TO DEFEAT A NON-COMPETE

AGREEMENT IN NEW YORK
Jonathan M. Cooper, Esq.
TO COMPETE OR NOT TO COMPETE THE DEFINITIVE INSIDERS GUIDE TO NONCOMPETE AGREEMENTS IN NEW YORK
INCLUDING:

NY LAW
WHEN A NON-COMPETE AGREEMENT IS ENFORCEABLE UNDER
HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS OLD CLIENTS
to
compete

WHAT AN EMPLOYER CAN DO WHEN AN EMPLOYEE OR FORMER
EMPLOYEE VIOLATES HIS NON-COMPETE
or
not to compete
AND,

AGREEMENT
IN NEW YORK Insiders Guide to
The
Definitive
Non-Compete Agreements in New York
to
compete
or
not to compete
The Definitive Insiders Guide to
Non-Compete Agreements in New York
WOR D
A S SO C I AT ION PU BL I SH E R S
1.800.827.7903
Copyright 2013, 2014 by Jonathan M. Cooper

All rights reserved. No part of this book may be used or reproduced in any
manner whatsoever without written permission of the author.
Printed in the United States of America.
ISBN: 978-1-59571-923-2
Designed and published by
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Tarentum, Pennsylvania 15084
1.800.827.7903
TABLE OF CONTENTS
WHY NOT KNOWING WHETHER YOUR
NON-COMPETE AGREEMENT IS ENFORCEABLE IS
DANGEROUS ........................................................................ 9
WHAT IS A NON-SOLICITATION, OR
NON-COMPETE PROVISION? ..................................... 12
HOW FIDUCIARY DUTY RELATES TO
NON-COMPETE AGREEMENTS ................................. 12
WHAT INFORMATION DOES A TYPICAL
NON-COMPETE AGREEMENT INCLUDE? ............ 14
WHAT DOES A SAMPLE NON-COMPETE CLAUSE
LOOK LIKE? ........................................................................ 15
WHY EMPLOYERS SHOULD CHOOSE CAREFULLY
THE PREFERRED FORUM FOR LITIGATING THEIR
NON-COMPETE DISPUTES .......................................... 16
WHEN A NON-COMPETE AGREEMENT IS
ENFORCEABLE UNDER NEW YORK LAW ............ 20
WHAT HAPPENS WHEN YOUR EMPLOYMENT
CONTRACT EXPIRES IN NEW YORK ...................... 21
WHEN NEW YORK COURTS MAY ACTUALLY
EXTEND YOUR NON-COMPETE AGREEMENT .. 22
WHY NEW YORKS COURTS WONT ENFORCE
NON-COMPETES UNLESS IT IS AGAINST KEY
EMPLOYEES ........................................................................ 24
HOW A NON-COMPETE CAN REMAIN
ENFORCEABLE IN NEW YORK - EVEN IF YOURE
FIRED ..................................................................................... 26
HOW SOME NON-SOLICITATION AGREEMENTS

GO TOO FAR ....................................................................... 26
JUST BECAUSE A NON-COMPETE IS OVERLY
BROAD DOESNT MEAN THE EMPLOYEE IS IN
THE CLEAR ......................................................................... 27
HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS
OLD CLIENTS UNDER NEW YORK LAW ............... 28
WHEN A FIDUCIARY BREACHES A NY
NON-COMPETE AGREEMENT AND LIES
ABOUT IT ............................................................................. 29
WHAT AN EMPLOYER CAN DO WHEN ITS
(FORMER) EMPLOYEE VIOLATES HIS
NON-COMPETE AGREEMENT ................................... 31
I. The Employer Can Seek an Injunction Barring the
Employee from Working at His New Job ...................... 31
a) The Most Important Component to Securing a TRO 32
II. The Employer Can Seek to Recoup the Money it Paid

the Employee ...................................................................... 33
III. The Employer Can Sue to Recover Lost Profits .... 34
IV. The Employer Can Sue to Recover Liquidated
Damages .............................................................................. 35
TWO THINGS THAT AN EMPLOYER CANT
RECOVER FROM A DISLOYAL EMPLOYEE ........... 36
I. In the Non-Compete Context, Unjust Enrichment
Claims Are (Usually) Doomed ......................................... 36
II. You Cant Recover Damages That You Cant Prove . 38
3 WAYS AN EMPLOYEE CAN FIGHT BACK

AGAINST HIS EMPLOYERS LAWSUIT OVER HIS
NON-COMPETE ................................................................ 39
I. Putting the Employer to its Proofs ............................. 39
II. Demonstrating that the Employer Has Unclean
Hands ................................................................................. 40
III. Proving that He Didnt Quit; He Was Fired (a/k/a
The Most Powerful Way To Defeat A Non-compete
Agreement in New York) ............................................... 41
COMPANY WINS OVER $1.3 MILLION FROM
FORMER MANAGERS WHO VIOLATED THEIR
NON-COMPETES .............................................................. 44
REDUCTION IN PAY MAY VITIATE
NON-COMPETE, SAYS NY COURT ............................ 45
WHY A FORMER EMPLOYEE SHOULD FIGHT A TRO
IN NEW YORK - EVEN BEFORE ITS SIGNED ........ 46
WHAT ARE YOUR OPTIONS IF THE COURT RULES

AGAINST YOU AT THE BEGINNING OF A
NON-COMPETE CASE? .................................................. 48
WHY FORMER EMPLOYERS MAY SUE OVER
NON-COMPETES - EVEN UNENFORCEABLE
ONES ...................................................................................... 50
CONCLUSION ...................................................................... 52
TO COMPETE OR NOT TO COMPETE
WHY NOT KNOWING WHETHER

YOUR NON-COMPETE AGREEMENT
IS ENFORCEABLE IS DANGEROUS
Over the last several years, Ive been privileged to help many
good, well-intentioned people who faced litigation over a noncompete agreement.
In many instances, I have witnessed people who were either
untrained in a particular area of the law or made wholly unaware of
certain laws made mistakes. And that is certainly understandable.
But for some reason, in the realm of non-compete agreements,
the mistakes seem more frequent, and the misconceptions more
pronounced than in other areas of the law. And this is true from
both the vantage of employers as well as employees.
Some employers will stand idly by as their key clients and
employees are poached by a disloyal former employee because
they (mistakenly) believe that a court will inherently disregard the
employees non-compete agreement. Conversely, there are some
(overly) bold executives or employees who mistakenly assume
that their agreement is unenforceable, and proceed to render
themselves (and their new employers) vulnerable to significant
legal fees and potential damages.
Granted, the realm of non-compete agreements is heavily factdriven, and perhaps more so than almost any other branch of law
in New York. Nevertheless, I decided to commit to writing some
of the basic principles that New Yorks courts use to analyze
these agreements.
I hope you will find this book educational and helpful. And heres
the best part: You can hopefully find answers to your question(s)
9
from the privacy of your office or home even before you consult an
attorney.
This Book Is Not Legal Advice
It is also important that you understand the limitations of this
book. Although I believe this book is extremely valuable as a
resource, every case is unique, and presents its own particular
facts and legal issues. Consequently, please do not construe
anything in this book to be legal advice about your case until we
have mutually agreed in writing that I have accepted your case.
So, where to begin?
I think the best place to start is by de-bunking some myths about
non-compete agreements in New York.
Fact #1: Prosecuting or defending a lawsuit over a noncompete agreement is inherently complicated.
New Yorks laws regarding breach of contract in general, and
non-competes specifically, can be highly technical. Aside from
the nature of the relief that each side will from the Court - which
will often include a restraining order - non-compete disputes pit
several competing legal doctrines against each other.
As a case in point, non-competes is one of those rare areas of
the law where cases are often decided shortly after inception (and
frequently based on the pleadings alone), it is essential that you
plead your claims wisely.
Thus, while there are many types of cases which do not require
an attorneys assistance, you would be ill-advised to try that in the
non-compete realm.
10
Fact #2: Since the world of business litigation in general,

and breach of non-compete agreements in particular, is
intricate (see Fact #1), there are relatively few nuisance
value non-compete dispute cases that are worth pursuing
in New York.
Myth #1: If an Employee Signs a Non-Compete Agreement
and then Breaks the Agreement, the Employer Has an
Open and Shut Case for Breach of Contract.
This is just plain wrong.
While New Yorks Court of Appeals (New York States highest
court) has upheld non-compete agreements in order to protect
a former employers legitimate business interests (this will be
discussed in further detail below), they have also expressed their
general disfavor for non-compete agreements.
On the other hand
Myth #2: If the Non-Compete Agreement is Overly Broad,
a New York Court Will Automatically Invalidate the Entire
Agreement Right?
Wrong.
But if you didnt know this, you shouldnt feel bad; Most of the
attorneys Ive come up against in non-compete cases didnt know
this either.
New Yorks highest court has stated unequivocally that in certain
cases, the court can blue-line the agreement to modify the
overbroad clauses, and thereby bring it into line with New York
law.
11
Before we get to these finer details of how New Yorks courts

have dealt with non-compete and non-solicitation agreements
(or, in legalese, restrictive covenants), however, we first need to
establish the following:
WHAT IS A NON-SOLICITATION, OR
NON-COMPETE PROVISION?
Employment agreements often contain non-solicitation clauses
to protect the company after employees leave the business. The
risk to the business is that the former employee will steal the
employees or customers of the business when they are no longer
employed by the company. Clearly, companies have a significant
financial interest in preventing the employees in whom they
invested time, money and effort training and educating from
jumping ship. Similarly, businesses stand to lose a great deal if
their former employees are able to draw customers away from the
business with impunity.
To minimize these risks, many companies (wisely) require their
employees and consultants to sign non-solicitation agreements
restricting them from soliciting the companys employees or
customers either during or after the employment ends.
In other words, non-compete agreements are designed to keep
parties who are working closely together from wrongfully taking
advantage of the knowledge they gain from the relationship,
breaching their fiduciary duty.
HOW FIDUCIARY DUTY RELATES
TO NON-COMPETE AGREEMENTS
There are few legal phrases that are more misunderstood or
misapplied than fiduciary duty. Albeit in a limited context, noncompete agreements clarify this concept rather nicely.
12
But before we can identify a fiduciarys obligations, we must

first define what a fiduciary is and what it is not. By definition,
fiduciary relationships inherently require much greater trust and
confidence between two parties than typically exists in arms
length transactions. Common examples of this heightened and
expected degree of trust include the relationships between
employee and employer, agent and principal, partners or coventurers, and officers/ directors and the corporation.
Generally, the existence (or lack) of a fiduciary relationship is a
fact-specific inquiry. That said, New Yorks courts have held some
relationships too attenuated to be considered fiduciary, such as
the relationship between a property owner and his contractor,
as well as the relationship between a condominium seller and
purchaser.
Since the relationship between fiduciaries is based on heightened
trust, there are correspondingly greater responsibilities to act in
the best interests of that fiduciary. Stated differently, the fiduciaries
mutual responsibilities are directly proportional to the level of expected trust
between them.
But when it comes to an employee who seeks to start a competing
business, it gets very tricky.
Generally, an employee may not actively solicit or divert his
employers clients (or proprietary information) while still
employed. HOWEVER, he may form a competing business even
before leaving his job so long as he does so on his own time, in his
own place and on his own nickel. And, strange as it sounds, that
will not constitute a breach of fiduciary duty.
There is one important caveat this rule, though: The employee cannot
start a competing business if he was bound by an enforceable non-compete
agreement.
13
WHAT INFORMATION DOES A

TYPICAL NON-COMPETE
AGREEMENT INCLUDE?
While the specifics may vary, the typical New York non-compete
clause covers the following topics:
Duration: Also known as the Non-Compete Period, this
is how long an employee has to wait before moving to a
competing company.
Geography: The non-compete should specify the territory
where the employee cannot compete during the non-compete
period.
Contacts: This clause, often referred to as the nonsolicitation, or anti-poaching provision, is the heart of
a non-compete agreement. It will try to bar an employee
from taking the employers clients, leads, or customers to a
competing company.
Services: This clause will bar the former employee from
performing the same services that he provided while working
for his former employer. In other words, this clause sets forth
the types of work that will constitute unfair competition
with the employer.
Advertising: Typically, this clause prohibits the employee
from marketing the prohibited Services to any of
the companys Contacts or anyone else located in the
Geographic Scope within the Non-Compete Period.
14
WHAT DOES A SAMPLE

NON-COMPETE CLAUSE LOOK LIKE?
One of the most amusing or sad, depending on your perspective
things about the first year of law school is that you are required
to take a full-year course on contracts, but you never review an
actual contract for the entire year.
Im not going to perpetuate that injustice.
So, in response to the question I posed, here is some relatively
common language contained in non-compete agreements I
adapted from some of the cases Ive handled:
In exchange for initial and/or continued employment,
at the Termination Date, EMPLOYEE shall not in any
way Compete, as defined below, with [Employer] for a
period of one year.
The term Compete includes, but is not limited to:
i) providing services directly, indirectly or on behalf of
a third party to any person or entity in the Geographic
Area that are within the scope of services provided by
EMPLOYER (competing services);
ii) providing services directly, indirectly or on behalf of a
third party to [Employer]s Customers located anywhere
including outside of the Geographic Area;
iii) soliciting directly, indirectly or on behalf of a third
party any customer for [Employer]s services in the
Geographic Area, whether or not [Employer] is under
contract with them or has a business relationship with
them, for any reason whatsoever including but not limited
to soliciting contact information, business or referrals;
15
iv) advertising and promoting competing services or

products in any existing or future advertising medium,
including, but not limited to, e-mail, social networking
media, radio, television, newspaper, periodical, trade
magazine, trade show, convention, flyer and direct mail
which is aired, received or takes place, as applicable, in
the Geographic Area.
NOTE: Depending on the particular context, the same exact
contractual language can be held inherently enforceable or
unenforceable. Therefore, you cannot make any assumptions
about the enforceability of your non-compete agreement.
WHY EMPLOYERS SHOULD
CHOOSE CAREFULLY THE
PREFERRED FORUM FOR
LITIGATING THEIR NON-COMPETE
DISPUTES
You may want to litigate contract disputes in New York because
you have a New York attorney that you absolutely love -assuming you could actually ever love a lawyer. Even better,
you may want to designate New York as the dispute resolution
forum because its courts are more favorably disposed towards an
employers right to protect its legitimate business interests than
many other jurisdictions.
True, most states in the country will still enforce non-compete
agreements. But there is an increasing number and trend of
states that, in response to perceived overreaching by employers,
have introduced new and more restrictive regulations imposing
limitations on non-compete agreements. For example, New
Jersey legislators have now proposed a bill that would render non-
16
compete agreements inherently unenforceable against workers

that would otherwise qualify to receive unemployment.
Similarly, Virginia, Massachusetts and Minnesota have proposed
laws curtailing non-compete clauses, and an Illinois appellate
court recently ruled that a non-compete cannot be enforced
against a former employee that worked for a company for under
two years.
Why would the states do this? you ask.
Because there is a growing body of literature suggesting that noncompetes are inherently bad for the economy, as they not only
hinder competition, but inhibit those individuals from maximizing
the income they can earn from their unique blend of talents.
Anyway, I digress.
But before you pull the trigger and choose the forum, let me be
perfectly clear about this next point:
Courts will almost always defer to the parties choice of forum for resolving
disputes. Therefore, employers (who usually are on the drafting
end of these agreements) should take extra care in selecting
where they want these disputes to be litigated (or arbitrated, as
the case may be).
To drive this point home, a cursory review of the four-part analysis
that New Yorks Federal courts have endorsed to determine
whether to enforce a forum selection clause reveals just how hard
it is to invalidate one of them.
17
The first three parts of the analysis are as follows:

The first inquiry is whether the clause was reasonably
communicated to the party resisting enforcement. The
second step requires us to classify the clause as mandatory
or permissive, i.e., to decide whether the parties are
required to bring any dispute to the designated forum
or simply permitted to do so. Part three asks whether the
claims and parties involved in the suit are subject to the
forum selection clause.
If the forum clause was communicated to the resisting
party, has mandatory force and covers the claims and
parties involved in the dispute, it is presumptively
enforceable and the court should proceed to the
fourth inquiry, which is whether the resisting party has
rebutted the presumption of enforceability by making a
sufficiently strong showing that enforcement would be
unreasonable or unjust, or that the clause was invalid for
such reasons as fraud or overreaching. Phillips v. Audio
Active Ltd., 494 F.3d 378, 383, 384 (2d Cir.2007) (quoting
M/S Bremen v. Zapata OffShore Co., 407 U.S. 1, 15, 92
S.Ct. 1907, 32 L.Ed.2d 513 (1972)).
But what if you dont have a forum selection clause in your
agreement? you ask.
Under those circumstances, you will need to have more than a
passing connection with New York before you will be allowed
to sue there. Stated differently, although the courts will usually
accord a fair amount of deference to a plaintiff s choice of forum,
the courts deference is not unlimited.
18
Therefore, where the plaintiff fails to show that the parties or the
claim at issue has a substantial nexus to New York, the claim is
liable to dismissed. In legalese, this is referred to as forum non
conveniens, which means pretty much what it sounds like.
In that unlikely event, New Yorks courts have set forth that the
following criteria will be considered on a motion to dismiss for
forum non conveniens (which, not coincidentally, are the same
factors you
should consider in determining where to bring your lawsuit):
1) The burden on the New York courts;
2) The potential hardship to the defendant;
3) The unavailability of an alternative forum;

4) The residence of the parties; and,
5) The location of the events giving rise to the transaction

at issue.
Ghose v. CNA Reins. Co., 43 A.D.3d 656, 660 (1st Dept 2007).
While this test - at least insofar as New York is concerned - is
not a very strict one, the following practicality should not be
overlooked:
Why should a New York judge effectively volunteer to be
burdened with a case that really belongs somewhere else?
(The same logic applies for why New Yorks courts will often
honor an arbitration clause in a contract even if the applicability
of that clause is questionable.)
19
WHEN A NON-COMPETE
AGREEMENT IS ENFORCEABLE
UNDER NEW YORK LAW
A truthful New York lawyer should admit that it is hard to
predict whether a New York court will enforce a senior-level, key
employees non-compete agreement. That said, New York States
highest court has set forth four (4) criteria that will determine
whether the non-compete (a/k/a restrictive covenant) is
reasonable, and therefore, enforceable:
(1) The restriction does not go beyond that which is needed
to protect a legitimate interest of the employer;
(2) The restriction is not overly broad, and therefore
manifestly unfair, to the employee;
(3) The restriction is not injurious to the public; and,
(4) The non-compete clause has to be limited - reasonably

- both in terms of length of time as well as in geographic
scope.
Admittedly, this list isnt exactly a model of clarity - particularly if
youre an employee looking to find out whether your (soon to be)
former employers non-compete clause can be enforced against
you.
Luckily, the Court of Appeals has gone further, and enumerated
some of the factors it will consider in deciding whether to enforce
a non-compete agreement:
[N]o restrictions should fetter an employees right to
apply to his own best advantage the skills and knowledge
20
acquired by the overall experience of his previous

employment. This includes those techniques which are
but skillful variations of general processes known to the
particular trade.
On the other hand ...
[T]he courts must also recognize the legitimate interest
an employer has in safeguarding that which has made
his business successful and to protect himself against
deliberate surreptitious commercial piracy.
Doesnt that leave us right back where we started?
No; not exactly.
Rather, the courts are telling us that they will look to enforce a
non-compete so long as it is needed to keep a former employee
from breaching his fiduciary duty and wrongfully disclosing the
employers confidential, proprietary information that it expended
time, money and effort to develop. On the other hand, the courts
will look to invalidate agreements that overreach and unfairly
deprive individuals the opportunity to advance their careers
through the knowledge and skills they legitimately acquired.
WHAT HAPPENS WHEN YOUR
EMPLOYMENT CONTRACT
EXPIRES IN NEW YORK
One question that commonly arises is what happens when an
employment agreement containing a non-compete clause expires,
and the employee continues working for the employer without a
formal written agreement?
21
At first blush, it would seem that the non-compete should not

bind the employee, as that clause ended in tandem with the
expiration of the underlying employment agreement.
But that is not necessarily the case; at least not in New York.
Under New York law, [W]hen an agreement expires by its terms,
if, without more, the parties continue to perform as theretofore,
an implication arises that they have mutually assented to a new
contract containing the same provisions as the old. Martin v.
Campanaro, 156 F2d 127 (2nd Cir. 1946) cert denied 329 US 759
(1946). See also, North Am. Hyperbaric Ctr. v. City of New York,
198 AD2d 148 (1st Dept 1993).
Acknowledging the real world, New Yorks courts have granted
some leeway to elevate substance over form, recognizing that
where people forget to formally renew an agreement and continue
to act as if nothing changed, the law may deem, or presume, that
the parties agreed to renew the contract.
A word of caution is in order here, however:
When it comes to de facto, or presumed, contract renewals, [T]he
presumption is one of fact and may be rebutted. Borne Chemical
Co., Inc. v. Dictrow, 85 A.D.2d 646, 648 (2nd Dept 1981).
WHEN NEW YORK COURTS MAY
ACTUALLY EXTEND YOUR
NON-COMPETE AGREEMENT
Yes, its true. There are some circumstances under which
New Yorks courts have extended the term of a non-compete
agreement beyond the time set forth in the parties underlying,
original agreement.
22
But, as you could (or should) surmise, those circumstances are

extremely limited, and the reasons are obvious:
First, given the heavy volume of cases already glutting the courts
dockets, they do not want to get involved with parties contracts
on a granular level; and,
Second, the courts are loath to re-write parties contracts
especially where it will afford one party broader relief than it had
bargained for. Chimart Associates v. Paul, 66 N.Y.2d 570, 57374,
498 N.Y.S.2d 344, 489 N.E.2d 231 (1986)(collecting authorities);
George Backer Mgmt. Corp. v. Acme Quilting Co., Inc., 46 N.Y.2d
211, 219, 413 N.Y.S.2d 135, 385 N.E.2d 1062 (1978)(Freedom
to contract would not long survive courts ready remaking of
contracts that parties have agreed upon).
Consequently, the courts have only extended the parties noncompete beyond its original term in extenuating circumstances.
For example, in New York Real Estate Inst., Inc. v. Edelman, 42
A.D. 3d 321, 839 N.Y.S.2d 488 (1st Dept. 2007), the court
noted that the defendant hid his ownership interest in the
competing ... [business] for the entire two-year duration of
the non-compete agreement, and there was undeniable proof
that he was competing unfairly.
Needless to say, adducing the kind of proof marshaled in Edelman
is exceedingly rare. Therefore, it is generally safe to assume that
a New York court will not extend the term of a non-compete
agreement beyond its original term.
23
WHY NEW YORKS COURTS WONT

ENFORCE NON-COMPETES UNLESS
IT IS AGAINST KEY EMPLOYEES
New Yorks courts consider several factors in deciding whether
to enforce a non-compete clause. Close examination of these
criteria yields that, as a general rule, these clauses will only apply
to key employees, however:
An employees mere knowledge of the intricacies
of [a former employers] business operation is not a
protectable interest sufficient to justify enjoining the
employee from utilizing his knowledge and talents in this
area. Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303
(1976); see Tradition Chile Agentes de Valores LTDS v. ICAP
Sec. USA LLC, No. 09 Civ. 10343, 2010 WL 185656 at *3
(S.D.N.Y. Jan. 12, 2010) (A party seeking an injunction
must provide evidentiary support of ongoing damage to
its operations, reputation or goodwill).
In the same vein, one Federal Court in New York stated that [M]
ere speculation that the loss of a valuable employee will result in
[irreparable harm] is insufficient to warrant an injunction.
To that end, another Federal New York court required the
employer to show that the employees replacement is essentially
impossible before enjoining the employee from working for a
competitor. International Creative Management, Inc. v. Abate, No. 07
Civ. 1979, 2007 WL 950092 at *6 (S.D.N.Y. Mar. 28, 2007).
24
HOW A NON-COMPETE CAN

REMAIN ENFORCEABLE IN
NEW YORK - EVEN IF YOURE FIRED
New Yorks courts have stated openly that they will look actively
to invalidate non-compete clauses because they dont want to
create an unreasonable restraint upon an employees liberty to
earning a living.
As a corollary to that principle, employers who fire an employee
without good cause cannot then hold that employee to the
non-compete clause. (This rule is discussed more fully below).
But there is an important exception to this rule:
The Employee Choice doctrine.
Whats that? you ask.
The Employee Choice doctrine provides that an employer
can enforce a non-compete against an employee even posttermination if the employee accepts post-employment severance
or benefits in exchange for honoring the non-compete.
Under those circumstances, the non-compete remains
enforceable because the employee is making an informed choice
between forfeiting his benefit or retaining the benefit by avoiding
competitive employment (Kristt, 4 A.D.2d at 199, 164 N.Y.S.2d
239).
New York States highest court further elucidated this
Doctrine as follows:
The [Employee Choice] doctrine rests on the premise
that if the employee is given the choice of preserving his
25
rights under his contract by refraining from competition

or risking forfeiture of such rights by exercising his right
to compete, there is no unreasonablerestraint upon an
employees liberty to earn a living (see Kristt v. Whelan, 4
A.D.2d 195, 199, 164 N.Y.S.2d 239 [1st Dept.1957], affd.
without op. 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d
116 [1958]; see also Post, 48 N.Y.2d at 88-89, 421 N.Y.S.2d
847, 397 N.E.2d 358).
It assumes that an employee who leaves his employer
makes an informed choice between forfeiting his
benefit or retaining the benefit by avoiding competitive
employment (Kristt, 4 A.D.2d at 199, 164 N.Y.S.2d 239).
One final point:
Once the employee signs off on this new agreement, the
non-compete may be enforced - even if the agreement is terribly
unreasonable.
HOW SOME NON-SOLICITATION
AGREEMENTS GO TOO FAR
At the risk of stating the obvious, while some non-solicitation
agreements will be upheld by New Yorks courts, others wont.
So where is line drawn? you ask.
True, these are typically fact-specific inquiries, but New Yorks
appellate courts have articulated some general guidelines:
An employer may use a non-solicitation agreement to protect its
investment in creating and maintaining its goodwill and customer
base.
26
HOWEVER, an employer many not use a non-solicitation

agreement to prevent a former employee from dealing with the
employers entire client base, including clients that the defendant
never serviced, nor acquired any relationship with while employed
by the company. See, e.g., Stackrow & Co. v. Skavina, 9 AD3d 805,
806 (3d Dept. 2004); Good Energy, L.P. v. Kosachuk, 49 AD3d 331,
332 (1st Dept. 2008).
That would be considered going too far, and would not be
enforceable.
JUST BECAUSE A NON-COMPETE IS
OVERLY BROAD DOESNT MEAN
THE EMPLOYEE IS IN THE CLEAR
Why? you ask.
Because a court remains empowered to re-write, or blue-line, the agreement.
In fact, in its November 2, 2012 decision in Crossroads, ABL, LLC
v. Canaras Capital, a New York County trial judge clearly suggested
that had the defendant asked, he would have been inclined to rewrite the parties non-compete agreement (which was obviously
overbroad), stating:
Since there is no practical temporal limitation contained
in the provision, this covenant would prohibit [plaintiff]
from competing with [defendants] indefinitely, so long
as its membership interest remained above 15 percent.
Furthermore, there is no geographic limitation provided.
There has been no request to modify, or blue-pencil this provision,
and I decline to do so sua sponte.
The moral of the story is clear:
27
It is - and remains - extraordinarily difficult to predict with any

degree of certainty whether a particular non-compete agreement
will be upheld in a court of law (at least in New York).
HOW A FIDUCIARY CAN
PERMISSIBLY SOLICIT HIS OLD
CLIENTS UNDER NEW YORK LAW
Under New York law, the seller of a business impliedly
covenants, or promises, not to solicit his old customers away
from the business to a competitor. In legal terms, this is called the
Mohawk Doctrine. And this doctrine is in place even where the
parties dont enter into a formal non-compete agreement.
So, the question arises, in the absence of a non-solicitation or
non-compete agreement, where is the line drawn between what
constitutes permissible solicitation of a former employers client,
and improper solicitation - or poaching - of a former employers
client under New York law? Stated differently, how far does
a sellers implied covenant not to compete or solicit his old
customers away from the business extend?
Unsure of the answer to this question, a Federal appeals court
punted it over to New York States Court of Appeals, who in
turn recognized that there is no bright-line test, and that each case
will inherently be fact-specific. However, the Court of Appeals
also stated that the determination will turn on whether this
seller and former employee actively solicited the former clients
and/or employees, or was merely passive, answering questions
that originated from the clients. While active solicitation would
be prohibited under the Mohawk Doctrine, passive activity in
response to client inquiries would be permitted.
28
To better illustrate these principles at work, following are some

examples from New Yorks courts:
WHEN A FIDUCIARY BREACHES A NY NONCOMPETE AGREEMENT AND LIES ABOUT IT
Reading the appellate courts rendition of the facts in GoSmile,
Inc. v. Levine, a case where the plaintiff claimed breach of
contract, breach of non-competition agreement and fraudulent
inducement/concealment, it is clear that the court empathized
with the plaintiff, and wanted to allow the plaintiffs their day in
court.
The sordid details are as follows:
Defendant Levine, together with his wife, founded GoSmile,
Inc., a company that developed and sold tooth-whitening and
oral hygiene products. The Levines were the companys sole
stockholders, directors and employees. After enjoying a measure
of success, the Levines sold a majority interest in the company to
investors (the plaintiffs).
At the time of the sale in 2003, the Levines executed confidentiality
and non-competition agreements granting the company exclusive
ownership rights of all intellectual property associated with the
company, and prohibited the Levines from using this information
to compete with the company. In exchange for a cash payment,
the Levines became at-will employees, directors and minority
owners of the company.
After the purchase was completed, the parties became embroiled
in arguments over the companys financial difficulties. As a result,
the company terminated the Levines, and the Levines sued the
company for wrongful termination. That lawsuit was resolved via
a settlement agreement with plaintiff and several other parties
29
which contained a broad mutual release of all claims of all kinds,

whether known or unknown, that the parties ever had or now
had.
As part of the settlement agreement, plaintiff insisted upon
and Levine warranted that he had never breached the 2003
confidentiality and non-compete agreement. The settlement
agreement also obligated the company to pay the Levines a lump
sum of over $3 million, and an additional payout of $1 million
over the following 4 years in exchange for the remainder of the
Levines stock in the company.
Later, the company learned that Levine had, in fact, breached
his fiduciary duties to the company by using this confidential
information to compete unfairly with the plaintiff.
The appellate court credited plaintiff s claim that Levine
deliberately lied about (in legalese, misrepresented) breaching his
fiduciary duty and non-compete agreement with the company
in order to fraudulently induce GoSmile into paying him the $3
million settlement.
In order to reach this result, however, the Court had to sidestep
procedural landmines, including the following:
(1) Ordinarily, you cant convert a breach of contract
claim into a tort, such as fraud (which is an intentional
tort); and,
(2) As a general rule, you cant pursue a breach of
contract or fraudulent misrepresentation or concealment
claim if you waive those claims as part of a disclaimer or
settlement agreement.
30
Nevertheless, the appellate court went out of its way to offer a

creative, two-pronged analysis for why GoSmiles claims did not
offend either rule, stating:
(1) In the instant matter, plaintiff s allegation that
defendant knowingly misrepresented that he did not
breach the confidentiality and non-compete provisions of
the 2003 agreement is not merely an insincere promise of
future performance. It was instead, a misrepresentation
of then present facts that was collateral to the contract,
and thus plaintiff sufficiently alleged a cause of action
sounding in fraud; and,
(2)The general release did not act as a bar to plaintiff s
fraud and breach of contract claims because plaintiff
specifically sought defendants express warranty that
he didnt breach his non-compete agreement, and the
general release stated clearly that it did not extend to
claims which [plaintiff] does not know or suspect to
exist in his favor at the time of executing the release.
After reading the courts rendition of the facts of this case, no
one should be surprised at the outcome.
WHAT AN EMPLOYER CAN DO
WHEN ITS (FORMER)
EMPLOYEE VIOLATES HIS
NON-COMPETE AGREEMENT
I. The Employer Can Seek an Injunction Barring the

Employee from Working at His New Job
The filing of a request with the court for a temporary restraining
order, or TRO, is the first step for a company alleging that its
31
former officer or other key employee breached his fiduciary duty

and violated his non-compete clause.
Why is this filing so significant? you ask.
Because if granted, the TRO will effectively put this former
employee on ice, barring him from either working for a
competitor, or exploiting some knowledge or client relationship
that he or she gained while working for the company at least
until the Court issues a further order allowing him to resume
working at his new job.
I am confident we can all agree that this is very significant indeed.
Recognizing that a plaintiff-company is seeking the extreme relief
of putting the defendant out of a job, New Yorks courts have
understandably required the plaintiff to satisfy a heightened
threshold of proof (which is discussed below) before it will grant
the injunction.
The importance of the Courts response to the companys
request for injunctive relief is not limited to the motion itself;
if the Court grants the TRO, the Court is signaling its view that
the company is likely to ultimately prevail at the conclusion of
the case. Consequently, by granting access to its crystal ball,
the Court is affording both parties the opportunity to ascertain
whether it is indeed worthwhile to pursue a case about which the
court may have already made up its mind.
a) The Most Important Component to Securing a

TRO
In order to obtain a restraining order, the plaintiff-company must
demonstrate, among other things, that they are about to suffer
imminent, irreparable harm unless the injunction is granted.
32
The next question, therefore, is obvious:

How can an employer show that unless an injunction is
granted, the company will suffer irreparable harm?
New Yorks courts have answered this question as follows:
The Second Circuit has recognized that damage to ones
business reputation and loss of customer goodwill can
constitute irreparable harm. Xelus, Inc. v. Servigistics, Inc.,
371 F.Supp.2d 387, 390 (W.D.N.Y. 2005) (citing Register.
Com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004));
see also Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69-70
(2d Cir.1999) (it is very difficult to calculate monetary
damages that would successfully redress the loss of
a relationship with a client that would produce an
indeterminate amount of business in years to come).
II. The Employer Can Seek to Recoup the Money it Paid

the Employee
Contrary to popular belief, employers do have potential recourse
against former employees who collect a salary while not living up
to their end of the deal:
The employer can sue them and get (at least some of) their
money back.
Yes, you read that correctly.
The New York rule is that when an employee breaches the
employment contract by refusing to perform, the employer is
entitled to recover the difference between the contract wage and
what the employer was required to pay to replace the employee.
Triangle Waist Co. v. Todd, 223 N.Y. 27, 119 N.E. 85; Valentine Dolls,
Inc. v. McMillan, 25 Misc.2d 551, 202 N.Y.S.2d 620.
33
Naturally, this also means that if the employer promptly replaces

that disloyal, or non-performing, employee with someone else at
a lower salary, it is unlikely the employer can recover any damages.
See, e.g., Marcus v. Liner, 85 Misc. 368, 147 N.Y.S. 458 (employer
not entitled to recover damages where employee designer is
replaced within two weeks by another designer at a lower salary).
III. The Employer Can Sue to Recover Lost Profits

New Yorks courts have held that an employer can recover his
lost profits that directly result from the employees breach of
the non-compete agreement, stating [T]he proper measure of
damages [for breach of a restrictive covenant not to compete]
is the net profit of which plaintiff was deprived by reason of
defendant[s] improper competition with plaintiff (Pencom Sys.
v. Shapiro, 193 A.D.2d 561, 598 N.Y.S.2d 212; see also Gomez v.
Bicknell, 302 A.D.2d 107, 756 N.Y.S.2d 209; Support Sys. Assocs.
v. Tavolacci, 135 A.D.2d 704, 522 N.Y.S.2d 604); See also, E.W.
Bruno Co. v. Friedberg, 28 A.D.2d 91, 281 N.Y.S.2d 504, aff d, 23
N.Y.2d 798, 297 N.Y.S.2d 302, 244 N.E.2d 872; see Weinrauch v.
Kashkin, 64 A.D.2d 897, 407 N.Y.S.2d 885; McRoberts Protective
Agency, Inc. v. Lansdell Protective Agency, Inc., 61 A.D.2d 652,
403 N.Y.S.2d 511 (i.e., profit plaintiff would have made, not the
profits defendant did make).
To that end, and importantly, the employer will only be able to
recover his lost net profits - not his gross profits - that directly
result from the employees actions, as New Yorks courts have
stated unequivocally that [T]he proper measure of damages
[for breach of a restrictive covenant not to compete] is the net
profit of which plaintiff was deprived by reason of defendant[s]
improper competition with plaintiff (Pencom Sys. v. Shapiro,
193 A.D.2d 561, 598 N.Y.S.2d 212; see also Gomez v. Bicknell, 302
34
A.D.2d 107, 756 N.Y.S.2d 209; Support Sys. Assocs. v. Tavolacci,

135 A.D.2d 704, 522 N.Y.S.2d 604).
But heres an interesting caveat to that rule:
If the employee engaged in these improper acts while he was still
employed by the plaintiff/former employer (thereby breaching
his fiduciary duties to the employer), the employer will be entitled
to recover all of the profits that the employee gained during that
time, because [D]isgorgement of defendants profits would be
the proper measure of damage if defendant had used the trade
secrets for his own benefit while still in plaintiff s employ.
IV. The Employer Can Sue to Recover Liquidated

Damages
While most non-compete agreements that Ive seen do not have
such a provision, there are some employers who have gone to
the trouble of inserting a clause in the contract stating that in
the event that the employee breaches the non-compete (or, in
legalese, restrictive covenant), he may be liable for a multiple of
the billable work generated by the client that over the past year which has now been lost to the company/employer.
So, heres the question:
Is such a provision an enforceable liquidated damages clause, or is
it an unenforceable penalty insofar as New York law is concerned?
Unfortunately, there really isnt a clear-cut answer, or bright-line
test, because each such clause turns on its own unique facts. That
said, New York States highest court has weighed in on the factors
that the courts must look to in order to determine whether the
particular liquidated damages clause is enforceable or not, stating:
35
Liquidated damages provisions, under our precedents,

are valid if the damages flowing from a breach are difficult
to ascertain [and under] a provision fixing the damages
in advance * * * the amount is a reasonable measure of
the anticipated probable harm (City of Rye v Public Serv.
Mut. Ins. Co., 34 N.Y.2d 470, 473). On the other hand, if
the amount fixed is plainly or grossly disproportionate
to the probable loss, the provision calls for a penalty and
will not be enforced (Truck Rent-A-Ctr. v Puritan Farms
2nd, 41 N.Y.2d 420, 425).
TWO THINGS THAT AN
EMPLOYER CANT RECOVER
FROM A DISLOYAL EMPLOYEE
I. In the Non-Compete Context, Unjust Enrichment

Claims Are (Usually) Doomed
When an employee leaves to go work for a competitor in violation
of a non-compete agreement, one of the common claims leveled
against the competitor (a/k/a the new employer) is that they have
unfairly benefitted from the time, blood, sweat, tears and money
the former employer invested in this employee. In legalese, this
is referred to as unjust enrichment. (For additional information
on this topic, please see my article How to Prove an Unjust
Enrichment Claim Under New York Law).
Unjust enrichment claims are not without limitations, however,
and in the context of non-competes, often fail.Heres why:
As noted in How NY Courts Limit Unjust Enrichment Claims,
one required element of this claim is that the relationship between
the plaintiff and the defendant isnt too attenuated. This has
36
important implications in the context of the violation of a noncompete agreements as well.

Applied to this context, since [T]he mere fact that the plaintiff s
activities bestowed a benefit on the defendant is insufficient to
establish a cause of action for unjust enrichment, Clark v. Daby,
300 A.D.2d 732 (3d Dept 2002).
In order to sharpen this concept, following are a few cases where
New Yorks courts applied this principle:
In Barbagallo v. Marcum LLP, 820 F. Supp. 2d 429, 447-48
(E.D.N.Y. 2011), a Federal court held that by hiring plaintiff s
former employee that was bound by a non-compete, the
defendant company improperly benefitted from the plaintiff,
securing benefits to which it was not entitled.
However, the Court also noted that since the connection between
the plaintiff and the defendant was only indirect i.e., the benefits
were not the result of services the plaintiff had performed for the
defendant, the connection between plaintiff and defendant was
too attenuated to support an unjust enrichment claim.
Likewise, in Wayne Thomas Salon, Inc. v. Moser, 2010 N.Y. Misc.
LEXIS 5015, *12 (Sup. Ct. N.Y. Co. Oct. 12, 2010), a New York
court dismissed a former employers unjust enrichment claim
against its former employee as well that former employees new
employer even though the defendants reaped benefits, including
income from plaintiff s clients, after hiring plaintiff s former
employee.
Once again, the courts reasoning was straightforward: The
plaintiff did not itself confer any benefit upon defendants which
would entitle it to recovery. See also, Zeno Group, Inc. v. Charlotte
Wray, 2008 N.Y. Misc.
37
LEXIS 10229, *30 (Sup. Ct. N.Y. Co. Sept. 26, 2008) (The
complaint states that defendants have been unjustly enriched in
receiving the benefits of employment and client relationships,
including that of a special and extraordinary employee who had
access to the highly confidential and proprietary information
of [plaintiff]. [T]his argument is ineffective. Defendants
presumably paid [employee] for her services, and did work in
exchange for payment from clients. Nothing was bestowed upon
them.).
II. You Cant Recover Damages That You Cant Prove

I was recently contacted by the proprietor of a small business,
a cleaning service, and she wanted to sue one of her former
employees for breaching her non-compete agreement, and
starting a competing agency on company time. Therefore, she
wanted to secure an injunction barring this former employee
from unfairly competing against the business. Fair enough.
This proprietor also wanted her former employee to pay damages,
and fork over every penny she made on the new business.
There was just one small problem, however:
This proprietor had no way of proving what damages, if any, she
sustained as a result of this former employees actions because
she couldnt point to a single client that had been poached by this
former employee.
When I pointed out that as the plaintiff, it was her burden - not
the former employees burden - to demonstrate damages, she
became agitated; and when I told her that no, you cant bar the
competing agencys employees (people who never worked for
her, and who never signed an agreement with her) from working
in that field, she became downright furious.
38
This woman refused to understand that you cant ask a New

York court to impose a non-compete agreement on people that
you cant even identify; she refused to understand that there are
limits on what you can recover for the breach of a non-compete
agreement under New York law. (Needless to say, this woman and
I parted ways).
3 WAYS AN EMPLOYEE CAN FIGHT
BACK AGAINST HIS EMPLOYERS
LAWSUIT OVER HIS NON-COMPETE
I. Putting the Employer to its Proofs

In the last year alone, I have encountered the following question
several times:
Is it enough for a plaintiff to claim, in general terms, that a former employee
(or someone else) stole (or, in legal terms, misappropriated) their trade
secrets (and in the process, breached a fiduciary duty and/or violated a noncompete clause), or do they have to do something more?
As Im sure you guessed, a generic claim of this sort will not
suffice under New York law.
To the contrary, a New York County trial court recently articulated
the rule, as well as its underlying rationale, as follows:
[T]he law requires that a trade secret plaintiff identify
trade secrets with reasonable particularity early in the
case. See, Xerox Corp. v. IBM Corp., 64 F.R.D. 367, 371
(S.D.N.Y. 1974) ([t]he burden is upon the plaintiff
to specify [the alleged trade secrets], not upon the
defendant to guess at what they areClearly until this
is done, neither the court nor the parties can know, with
any degree of certainty, whether discovery is relevant
39
or not; and it is doubtful whether [defendant] can

undertake a meaningful discovery program.). Only
by distinguishing between the general knowledge in their
field and their trade secrets, will the court be capable of
setting the parameters of discovery and will defendants
be able to prepare their defense.
In other words, a plaintiff cannot be heard to claim on the one
hand, that the defendant stole his confidential information, yet
on the other hand refuse to identify what it is that the defendant
stole.
Alternatively, I could tell you, but Id have to kill you doesnt
work in New Yorks courts.
II. Demonstrating that the Employer Has Unclean

Hands
No, this isnt an ad for good hygiene.
While weve written fairly extensively on the subject of seeking an
injunction from the Court (see e.g., Why Restraining Orders Are
So Important in a New York Non-Compete Case
and The 3 Critical Steps to Defend Against a TRO in a New
York Non-Compete Case), barring a former employee from
poaching his former employers clients or fellow employees,
there is an important factor that must be taken into consideration
before embarking down the path of seeking the injunction:
Whether the party seeking the injunction (alternatively referred to as a
restraining order) has clean hands.
Naturally, this leads to two questions:
40
(1) What does that mean? and,

(2) Why is that important?
First, clean hands means that the party who is seeking the
injunction, which is a form of fairness-based (in legalese,
equitable) relief, cannot come to court and seek such relief if
he has done anything manifestly improper.
The reason why this is important in this context is because clean
hands are a prerequisite for obtaining injunctive relief regardless of any alleged or even actual wrong attributable
to defendants.
Or, as one of New Yorks courts put it, [H]e who comes to
equity must come with clean hands and unclean hands may
bar injunctive relief concerning enforcement of a shareholders
agreement. Amarant v. DAntonio, 197 A.D.2d 432, 434 (1st Dept.
1993).
III. Proving that He Didnt Quit; He Was Fired

(a/k/a The Most Powerful Way To Defeat A
Non-compete Agreement in New York)
Although there are many ways to poke holes in a non-compete
agreement, more often than not, those attacks may not prove
decisive - at least not under New York law.
And the reason for this is relatively straightforward (as set forth
above): the courts often reserve the right to blue-line the agreement, which
means that the court can re-write the offending provisions of the agreement
to be more in line with accepted standards, such as by reducing
the length of a non-compete from 5 years to 18 months, or by
41
limiting the territorial restriction of a non-compete to a 100 mile

radius.
But there is another way of challenging a non-compete agreement
that can potentially strike a fatal blow to a plaintiff s attempt to
enforce it: where the plaintiff fired the defendant without cause.
A Federal Court in New York recently explained the rationale
behind this rule as follows:
New York courts will not enforce a non-competition
provision in an employment agreement where the former
employee was involuntarily terminated. SIFCO Indus.,
Inc. v. Advanced Plating Techs., Inc., 867 F.Supp. 155, 158
(S.D.N.Y.1994); see Post v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 48 N.Y.2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358, 361
(1979).
An essential aspect [of enforceable restraints on employee
mobility] is the employers continued willingness to employ
the party covenanting not to compete. SIFCO, 867 F.Supp.
at 158 (quoting Post, 421 N.Y.S.2d 847, 397 N.E.2d at 360).
Enforcing a noncompetition provision when the employee
has been discharged without cause would be unconscionable
because it would destroy the mutuality of obligation on which
a covenant not to compete is based. Morris v. Schroder Capital
Mgmt. Intl, 445 F.3d 525, 52930 (2d Cir. 2006) (quoting
Lucente v. IBM Corp., 310 F.3d 243, 25455 (2d Cir. 2002)).
I would be remiss if I didnt mention this next bit, however.
At the end of 2012, the Second Circuit, which is the Federal
appeals court for New York, noted that in the case before them
42
of Hyde v. KLS Professional Advisors Group, LLC, they didnt need

to decide this issue, but wanted to weigh in on whether an
employee can still be held to a non-compete even if she was
fired without cause.
In legalese, this is referred to as dicta, which means it is not
binding on anyone, but it certainly gives you a courts view of
an issue, and in many instances, other courts will look to it as
persuasive authority.
Heres what the court said:
In the interest of judicial economy, however, we note our
reservation about the district courts preliminary interpretation
of New York law. Relying on Post v. Merrill Lynch, Pierce, Fenner &
Smith, 48 N.Y.2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358 (1979),
the district court concluded that restrictive covenants are per se
unenforceable in New York against an employee who has been
terminated without cause. But in Post, the New York Court of
Appeals held only that when an employee was terminated without
cause, the employer could not condition the employees receipt of
previously earned pension funds on compliance with a restrictive
covenant. Id. at 89, 421 N.Y.S.2d at 849, 397 N.E.2d 358. We
caution the district court against extending Post beyond its
holding, when a traditional overbreadth analysis might be more
appropriate. See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 39293,
690 N.Y.S.2d 854, 85859, 712 N.E.2d 1220 (1999).
In other words, the Second Circuit believed that the trial courts
reading of Post as inherently invalidating non-competes for
employees that were fired without cause was incorrect.
While I think that the Second Circuits position goes down the
wrong policy path and many downstate courts in New York
43
have followed the SIFCO Industries courts analysis, and held

invalid a non-compete where the employee was terminated
without cause - an upstate appeals court has cited with approval
the Hyde decision, and I want to make sure you approach this
issue with your eyes wide open, aware of the possibility that a
New York court could go either way on this issue.
In any event, as this next piece indicates, this doctrine is not
applicable in all jurisdictions.
Company Wins Over $1.3 Million from Former

Managers Who Violated Their Non-Competes
Following a week-long trial that concluded on August 6, 2012,
a Colorado jury found that two former managers of a company
had not only breached their fiduciary duties to their employer (the
plaintiff), but had also violated their non-compete agreements
by acquiring a competing business and poaching both former
co-workers and customers away from the plaintiff, their former
employer.
This case, United Subcontractors, Inc. v. Cotten and Gott, had an
interesting twist that might have led to a different result under
New York law, however. One of the defendants, who had been
working as a manager for plaintiff, was actually fired before he
went to work for a competitor, and began soliciting some of his
former co-workers and clients from when he worked at United.
Why should that matter? you ask.
Because under New York law, if youve been fired, and its not
for cause, the general rule is that your non-compete agreement
is no longer enforceable. On the other hand, in this case the
plaintiff apparently produced a large amount of evidence that
the defendants were up to no good while still in their employ,
44
as one of them ordered hundreds of thousands of dollars in

insulation products from an unapproved supplier at a price
higher than the company would have paid. but repeatedly violated
and disregarded Uniteds policies.
Given the timing of everything else involved, it is entirely possible
that a jury would have still considered all of this pre-meditated by
the defendants in an effort to make the transition to the new
company more difficult to track and attack, leading to the same
result.
Reduction in Pay May Vitiate Non-Compete, Says NY

Court
In an important corollary to the general rule we set forth earlier,
that an employee who is fired without cause cannot be held to his
non-compete agreement, in October, 2012, a New York Federal
Court held that reducing an employees pay may, in some cases,
vitiate the employees non-compete agreement under NY law.
In IDG USA, LLC v. Schupp, et al., a salesman for IDG left to
work for a competitor in the Buffalo area, in apparent violation
of a non-compete agreement he had signed that barred him from
working for a competitor within 50 miles and for a period of
one year post-employment. Schupp was required to sign this
agreement - or so it appears from the record - in order to obtain a
promotion to account executive and receive a $3,000 raise.
Subsequently, Schupps salary was cut as part of a companywide salary reduction plan that was placed into effect in an
effort to avoid mass layoffs that would have been necessitated
by the economic downturn. After Schupp left to work for a
competitor - within the 50 mile radius and within a year following
his resignation - IDG sued, contending he had violated his noncompete agreement. Schupp countered that the only reason he
45
signed the non-compete agreement (NCA) in the first instance

was because he couldnt have gotten the promotion or raise
without it, and since IDG later reduced his salary, that action
rendered the non-compete unenforceable.
In finding that Schupps claim could theoretically have merit, the
Court stated as follows:
While there is no indication Schupp would have been
terminated had he failed to sign the NCA, these statements,
considered in the light most favorable to Schupp, suggest
that, had he refused to sign, he may have been denied
the raise and promotion. Because Schupp has raised a
triable question of fact as to whether his promotion and
raise were conditioned on his signing the NCA, such that
they could be considered part of the consideration for
signing, IDGs motion for summary judgment as to its
first and second causes of action is denied.
Why a Former Employee Should Fight a TRO in New

York - Even Before Its Signed
The threat posed to a newly former employee (and by extension,
his new employer) by a signed TRO is potentially devastating: it
can force him out of a job before it even begins, and deprive him
of a desperately needed paycheck until a further order of the
court.
In nearly all circumstances, however, the company will be obliged
to provide the employee with notice that it will be filing the
application with the court for the temporary restraining order, in
order to afford the employee a chance to oppose their application
- even before it is signed.
46
This opportunity to be heard on the companys application should

not be taken lightly - and heres why:
Since the company is seeking extraordinary relief, in that they are
seeking a court order barring someone from going to work, the
court will not sign off on such an order lightly. To the contrary,
the court is obliged to scrutinize closely their application before
granting it.
Therefore, it is often a good idea to retain an attorney that is
knowledgeable about this area of the law (i.e., non-compete
agreements) to analyze the former employees particular contract
to ascertain whether there are any glaring holes in the agreement
that might persuade the court to decline to sign off on the
companys application in the first instance.
The value in spending the money up front to appear and oppose
the TRO application is three-fold:
(1) If the court denies the companys application, you
may well be able to continue working in your present
capacity pending the outcome of the case;
(2) At worst, your attorney can push the court to leave
the order in place for a shorter time period pending a
further hearing; and,
(3) If the trial court declines to sign the TRO, the plaintiff
will often be left without any practical recourse, as it is
rather expensive to try to recast the application before an
appellate court, and it is unlikely the appellate court will
reach a different result once the trial court declined to
sign off on the TRO.
47
WHAT ARE YOUR OPTIONS IF THE

COURT RULES AGAINST YOU AT
THE BEGINNING OF A NON-COMPETE CASE?
In the context of non-compete cases - just as in any other type
of litigation - courts can get it wrong. Indeed, this just happened
to one of my clients in a Suffolk County action where the court
held that my client was bound to the non-compete agreement he
had with his employer, and therefore barred from working for
a competitor - even though they had fired him for a completely
unrelated reason. (As noted above in How a Non-Compete Can
Remain Enforceable in NY Even if Youre Fired, the general
rule in New York is that employees cannot be held to their noncompete agreements with their former employers if theyve been
fired.)
Generally, at that point, the former employee will be faced with
two primary options:
(1) Seek to Reverse, Vacate or Modify the TRO. Judges, like
anybody else, dont like being told they were wrong. That problem
aside, the challenges with this option are several:
First, if the Court granted the companys application for a
TRO, barring you, the former employee, from seeking (or
continuing) gainful employment with one of the companys
competitors, you will likely need a stay of the trial courts
order just to continue collecting a paycheck.
Second, securing a stay, especially when a court has already
albeit preliminarily -- ruled against you is much harder done
than said.
Third, and aside from the great expense that is usually
entailed with vacating or modifying an earlier court order, it
48
is important to bear in mind that such applications, whether

before a trial or appellate court, often arent decided for weeks
or months, by which time the issues that were raised on the
motion or appeal may be largely, if not completely, rendered
moot, leading directly to option #2, which is ...
(2) Explore Settlement. In many instances, the former employee
has relatively nominal funds available for settlement purposes
(after all, s/he just lost their job). Therefore, the former employer
should consider what they hope to accomplish by continuing to
press a protracted litigation with a highly uncertain return.
That said, settlement may not be a viable option at least at this
stage of the litigation where there is a significant amount of
money, or the moving of clients away from the former employer
is at stake.
Consider the following story, which illustrates rather nicely the
foregoing options at work:
Back in 2011, it was reported that a local downtown Brooklyn
paper sued one of its former reporters, and secured a temporary
restraining order barring him from working for a competing
periodical. The TRO was based upon a six-month non-compete
agreement the reporter had previously signed.
From the story, it appears that the reporter settled out with the
plaintiff, paying the paper over $2,000 in order to get out of the
non-compete.
Granted, I was not privy to much of the pertinent facts of this
case, but I was puzzled by one thing:
What conceivable trade secret did this reporter possess such that his
non-compete agreement shouldbe enforced?
49
Regardless, and relevant to this discussion, the reason that the

defendant settled with the plaintiff should be fairly obvious:
For the nominal sum of $2,000, the defendant was free to work wherever
and whenever he wanted.
WHY FORMER EMPLOYERS MAY
SUE OVER NON-COMPETES - EVEN
UNENFORCEABLE ONES
In a case that was filed in Federal Court in Massachusetts, Boston
Beer Corporation - the manufacturer of the popular Samuel
Adams beer - sued another brewery roughly 5% its size, Californiabased Anchor Brewers - claiming that the smaller brewery should
be barred from hiring its $60,000 per year sales manager because
otherwise, Boston Beer would stand to suffer irreparable harm.
Given that this sales manager was moving cross-country for a
new job, was a fairly low-level employee, and only worked for
Boston Beer for one year, it should come as no surprise that New
Yorks courts would be highly unlikely to uphold or enforce this
non-compete agreement (provided, that is, that this employee
wasnt using any information gleaned from his time at Boston
Beer to now unfairly compete with Boston Beer).
Under the circumstances, why bring the lawsuit?
As noted earlier, it appears that different jurisdictions give
greater (or lesser) deference to non-compete agreements,
and. Massachusetts generally favors upholding non-compete
agreements moreso than California, or New York, for example.
50
Suing the smaller brewery in Massachusetts has the added benefit

to Boston Beer of compelling its much smaller competitor to
litigate the case in a far more inconvenient venue.
51
CONCLUSION
In sum, since the high stakes and level of complexity involved in
assessing the viability of a breach of non-compete agreement, you
owe it to yourself to at least consult with an attorney before you
undertake any actions that could have significant ramifications on
your future employment prospects.
In this realm, minor adjustments in either direction could make the
difference between actions that prove rewarding or devastating.
Even if youve lost your job, that doesnt necessarily mean

that you cant hire a competent lawyer to handle your case.
There are increasing numbers of lawyers, like me, who are willing
to accept these cases in ways that call for other than a straight
hourly fee. Some of those
arrangements might include either prosecuting the case on a flat
fee, or imposing a cap on the legal fees in the case, thereby giving
you, the client, a firm limit on the expenses they will have to incur
in seeking to recover their damages.
As set forth above, I do not expect that this book will answer all
of your questions regarding a non-compete case under New York
law.
But, I hope youll agree, this book is a pretty good starting point.
If you have any further questions about your particular legal
issue(s), please feel free to pick up the phone and give me a call
at 516-791-5700. If you prefer, you can even send me an e-mail
at jmcooper@JMCooperLaw.com, and we can set up a mutually
convenient time to discuss your legal questions.
Jonathan Cooper
52
to
compete
to
compete
or
not to compete
or
Jonathan Cooper is, first and foremost, a

husband and father to seven (yes, thats
right - 7) adorable children with whom
he lives in Queens, New York. Less
importantly, he has litigated numerous
cases arising out of non-compete
agreements before New York's courts. He
has even had the privilege of arguing a
case before New York State's highest court
- the Court of Appeals.
not to compete
Jonathan has published hundreds of

articles on the topics related to not only non-compete agreements, but
breach of contract and business torts as well. He has been quoted in the
Wall Street Journal, and some of his other books have been featured by
CNBC. The real public service though, has been Jonathans websites, blogs
and educational videos, which provide a lot of free, useful information
and links on a variety of topics, such as breach of contract, business fraud,
defamation, and the different types of tortious interference claims under
New York law.
The Definitive Insiders Guide to Non-Compete

Agreements in New York
INCLUDING:
Visit Jonathans sites and blogs at:

www.JMCooperLaw.com
www.NYBusinessLitigationLawyer.com
www.NYSmallBusinessAttorney.com
WHEN A NON-COMPETE
UNDER NY LAW
HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS OLD

CLIENTS
WHAT AN EMPLOYER CAN DO WHEN AN EMPLOYEE OR

FORMER EMPLOYEE VIOLATES HIS NON-COMPETE
$16.95
WORD ASSOCIATION
PUBLISHERS
1.800.827.7903
AGREEMENT
IS
ENFORCEABLE
AND,


AGREEMENT IN NEW YORK

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Jonathan Cooper is, first and foremost, a

Jonathan has published hundreds of

The Definitive Insiders Guide to Non-Compete

Visit Jonathans sites and blogs at:

HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS OLD

WHAT AN EMPLOYER CAN DO WHEN AN EMPLOYEE OR

THE MOST POWERFUL WAY TO DEFEAT A NON-COMPETE

Jonathan M. Cooper, Esq.

WHEN A NON-COMPETE AGREEMENT IS ENFORCEABLE UNDER

HOW A FIDUCIARY CAN PERMISSIBLY SOLICIT HIS OLD CLIENTS

Non-Compete Agreements in New York

Jonathan M. Cooper, Esq.

Copyright 2013, 2014 by Jonathan M. Cooper

HOW SOME NON-SOLICITATION AGREEMENTS

II. The Employer Can Seek to Recoup the Money it Paid

3 WAYS AN EMPLOYEE CAN FIGHT BACK

WHAT ARE YOUR OPTIONS IF THE COURT RULES

WHY NOT KNOWING WHETHER

TO COMPETE OR NOT TO COMPETE

TO COMPETE OR NOT TO COMPETE

Fact #2: Since the world of business litigation in general,

TO COMPETE OR NOT TO COMPETE

Before we get to these finer details of how New Yorks courts

TO COMPETE OR NOT TO COMPETE

But before we can identify a fiduciarys obligations, we must

TO COMPETE OR NOT TO COMPETE

WHAT INFORMATION DOES A

TO COMPETE OR NOT TO COMPETE

WHAT DOES A SAMPLE

TO COMPETE OR NOT TO COMPETE

iv) advertising and promoting competing services or

TO COMPETE OR NOT TO COMPETE

compete agreements inherently unenforceable against workers

TO COMPETE OR NOT TO COMPETE

The first three parts of the analysis are as follows:

TO COMPETE OR NOT TO COMPETE

2) The potential hardship to the defendant;

3) The unavailability of an alternative forum;

5) The location of the events giving rise to the transaction

TO COMPETE OR NOT TO COMPETE

(4) The non-compete clause has to be limited - reasonably

TO COMPETE OR NOT TO COMPETE

acquired by the overall experience of his previous

TO COMPETE OR NOT TO COMPETE

At first blush, it would seem that the non-compete should not

TO COMPETE OR NOT TO COMPETE

But, as you could (or should) surmise, those circumstances are

TO COMPETE OR NOT TO COMPETE

WHY NEW YORKS COURTS WONT

TO COMPETE OR NOT TO COMPETE

HOW A NON-COMPETE CAN

TO COMPETE OR NOT TO COMPETE

rights under his contract by refraining from competition

TO COMPETE OR NOT TO COMPETE

HOWEVER, an employer many not use a non-solicitation

TO COMPETE OR NOT TO COMPETE

It is - and remains - extraordinarily difficult to predict with any

TO COMPETE OR NOT TO COMPETE

To better illustrate these principles at work, following are some

TO COMPETE OR NOT TO COMPETE

which contained a broad mutual release of all claims of all kinds,