New York Business Litigation Lawyer Blog
As promised, we write about another recent trade-secret case where the court refused to enforce an employer’s claims that its information was secret.
After plaintiff was indicted for a host of crimes, some of its employees left to form a competing business, in violation of their non-compete and confidentiality agreements. These employees argued that because of the indictment, their past employer had unclean hands and could not enforce the non-compete, which is equity-based relief and unavailable generally where the other party does not act equitably.
Judge Emerson, of Suffolk County Supreme Court, first addressed the non-compete issue by noting the “powerful considerations of public policy which militate against sanctioning the loss of a person’s livelihood.” This principle resulted in the general rule that restrictive covenants that prevent an employee’s work in a similar line are “disfavored by the law.” She then found that the non-compete provisions, which bound the employees for three years and contained no geographical limitation, to be overbroad, unnecessary to protect the employer, and therefore unenforceable.
In response to the employer’s claims that the employees violated its trade secrets and customer information, the court held that the employer took no “precautionary measures” to protect its information and could, therefore, voice no claim that it was secret. As to the customer lists, the employees established that it contained nothing more than well-known names of those in the same industry, and not a secret. The same was found to be true concerning its operations system, one used throughout that industry. That the employees knew the intricacies of a business or its system was not enough to restrict their future employment.
The court then addressed two points that are often overlooked by litigants in this setting. The employer asked that the court “blueline,” or rewrite, the restrictive covenants in a manner that would make them less restrictive and reasonable and enforceable. Judges typically reject that request, as was the case here, with the judge noting that because the employer failed to demonstrate that the non-compete provisions “serve[d] to protect a legitimate employer interest” the provision could not be enforced at all. Moreover, wrote the judge, because the employees were forced to sign the non-compete agreements as a condition of continued employment, meaning that if the employee refused he’d be fired, and he received no compensation or benefit (aside from the continued employment) in return, rendered the non-compete agreement unenforceable.
This last element is something every employer must understand. If an employee is faced with no choice but to sign a non-compete agreement or be terminated from the job, that agreement will not be enforced.
Devos, Ltd. v. United Returns, Inc.