An agreement containing a restrictive covenant is an agreement in which one party agrees to limit his conduct in exchange for a benefit. Two common types of restrictive covenants include agreements not to compete and agreements not to solicit. A non-competition agreement is a contract that an individual, often an employee, enters into with another party, often an employer, in which the individual agrees not to offer or engage in services that are competitive with the other party. A non-solicitation agreement is a contract in which an individual, often an employee, enters into with another party, often an employer, in which the individual agrees not to poach employees and/or clients of the other party. Non-competition and non-solicitation agreements may be beneficial to employers because they offer protection for their business models, clients, and/or employees, which they may have spent years developing and training.
The laws governing non-competition and non-solicitation agreements vary from state to state. New York law generally recognizes these restrictive covenants as enforceable to the extent they are reasonable. For more information as to whether or not your restrictive covenants are enforceable, see Enforceability of Restrictive Covenants in New York.
There are several types of claims available to employers for a violation of a restrictive covenant that are commonly recognized by New York courts. See Employer Remedies for Violations of Restrictive Covenants in New York. One such claim is a breach of contract claim. This claim may be asserted by an employer when an individual violates the terms of the contract that imposes the restrictive covenant.
Another claim available to the employer is a claim for tortious interference with contract. In order to assert such a claim, an employer must demonstrate that the defendant interfered with one or more contracts to which it is a party. The contract must be in effect in order to put forth this claim. An essential component of this claim under New York law is that the defendant both knew about the existence of the contract and that the defendant intentionally caused the other party(ies) to the contract to breach its terms without good cause. An employer may bring this type of claim against a defendant if he solicits an employee or client of the employer who is under contract with the employer, so as to cause the employee or customer to breach that contract. Again, the defendant would have to be aware of the existence of the contract and intentionally bring about the breach. This claim is commonly asserted against a former employee’s new employer who hired the employee despite having knowledge that hiring the employee would cause him to breach his contract with the plaintiff employer. Such allegations may be difficult to prove and, therefore, it is often challenging for plaintiffs to prevail in asserting this type of claim. Of note, New York courts recognize economic interests as good cause or “justification” for interfering with a contract, thereby making the legal burden of the employer even more difficult in successfully asserting such a claim. The New York Court of Appeals has found that “[t]he existence of competition…provides an obvious motive for defendant’s interference other than a desire to injure the plaintiff…as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace.” Carvel Corp. v. Noonan, 3 N.Y.3d 182, 191, 818 N.E.2d 1100, 1104, 785 N.Y.S.2d 359, 363, 2004 N.Y. LEXIS 2415, 10-11.
A claim for tortious interference with prospective advantage is similar to that of a claim for tortious interference with contract, but applies when no contract exists between the plaintiff and third party. Rather, this type of claim arises when the defendant induces a party from entering into a prospective contract. For example, a defendant causes an actual or prospective employee or customer to walk away from a contract prior to its finalization. Similar to a tortious interference with contract claim, the employer must demonstrate that the defendant intentionally and knowingly induced the party to act in a way that damaged the employer. However, the employer must also prove that the defendant acted by wrongful or improper means to do so. Examples of wrongful means include physical violence, fraud, misrepresentation, and undue economic pressure. This additional element makes asserting this claim even more difficult.
If you are an employer seeking to enforce a restrictive covenant or a party who is subject to a restrictive covenant, contact Maya Murphy, P.C. at (203) 221-3100 for a complimentary consultation to discuss your case.