What Are They?
Restrictive covenants are often found in agreements between franchisors and franchisees. The purpose of such covenants is to prevent franchisees—who are the owners and operators of businesses such as “chain-style” stores and restaurants—from harming franchisors by providing similar goods or services after the franchise agreement expires or is terminated. Restrictive covenants can serve to protect the good will of the franchisor after the franchise is reconveyed. See Jiffy Lube Int’l, Inc. v. Weiss Bros., 834 F. Supp. 683, 691 (D.N.J. 1993).
The Basics: What is a Restrictive Covenant?
As is well known, many employers include provisions in employment and severance agreements which are designed to limit former employees’ actions after the employment relationship has ceased. A restrictive covenant is a contractual provision restricting the activities of a former employee or agent or the former owner of a company for a fixed period after the cessation of the employment relationship or after the sale of the company in order to protect the employer’s legitimate business interests.
Anyone interested in learning about “Recent Developments In Restrictive Covenant and Trade Secret Litigation” should consider attending a CLE program at the New York County Lawyers Association at 14 Vesey Street in Manhattan on November 1 from 6:30 p.m. to 8:30 p.m. with networking starting at 6:00 p.m. I am very pleased to say that I will moderate the program and serve as a panelist N.Y. and N.J. lawyer attendees will each receive 2 CLE credits. Non-lawyers are welcome to attend. Use this link to register.
In my September 15 article, I identified certain steps that companies seeking and defending against preliminary injunction motions under the Defend Trade Secrets Acts of 2016 (“DTSA”) should consider. We left the discussion of whether the inevitable disclosure doctrine could be relied upon when seeking a preliminary injunction for a later day. Today is that day.
Where applicable, the inevitable disclosure doctrine allows a plaintiff company to establish a claim of trade secret misappropriation by demonstrating that a former employee’s prospective or new job will inevitably lead him to disclose the plaintiff’s trade secrets to his future or new employer or to rely on such information even where there is no evidence of actual disclosure.
I will be moderating a CLE program entitled “The Virtual Workplace” at the New York County Lawyers Association at 14 Vesey Street in Manhattan on September 27 from 6:30 p.m. to 8:30 p.m. with networking starting at 6:00 p.m. N.Y. and N.J. lawyer attendees will each receive 1 Ethics CLE credit and 1 Skills and General CLE credit, respectively. Non-lawyers are welcome to attend. Anyone interested in cybersecurity is likely to find this program interesting! Rich
The Defend Trade Secrets Act of 2016 (the “DTSA”) is a federal statutory vehicle that companies can use to try to protect their most valuable assets (along with their employees, hopefully) — their trade secrets. Since the DTSA is only slightly more than a year old, there have been relatively few federal court decisions addressing the scope and breadth of the statute. One such case decided this summer in the Northern District of Illinois, Cortz, Inc. v. Doheny Enterprises, Inc., 2017 WL 2958071 (N.D. Ill. 2017), sheds light on the type of information afforded protection under the DTSA.
A question that is or should be important to employers and employees alike is whether non-compete provisions in an employment agreement can be enforced in New York when the employee is terminated involuntarily without cause. As is well known, the law regarding restrictive covenant provisions such as non-competes is a matter of state law. Although disfavored in the typical employment context under New York law on the grounds that they interfere with a person’s right to earn a living, non-compete provisions are enforced if the terms are:
- no greater than required to protect an employer’s legitimate protectable interests and
- reasonable in temporal and geographic scope.
In New York, a promise of good faith and fair dealing is implicit in every contract. 511 W. 232ndCORP v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002); Smith v. General Acc. Inc. Co., 91 N.Y.2d 648, 652-653 (1998); Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389 (1995) A contract is breached when a party acts in a manner that deprives the other party of the right to receive the benefits to which it is entitled under the agreement even if such action is not expressly forbidden by any contractual provision. The implied covenant protects the reasonable expectations of each party arising out of the written agreement it entered into. Jennifer Realty Co., 98 N.Y.2d 144, 153; accord M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990).
As is widely recognized, the attorney-client privilege is one of the most important fundamental principles in the legal profession. Every attorney has an obligation to protect his or her clients’ information and to keep attorney-client communications confidential. Of course, this principle applies to in-house counsel as well as outside counsel. Accordingly, it is crucial for both corporate legal departments and law firms to adopt and implement safeguards in order to protect client information. Although all lawyers presumably know that they have a duty to protect privileged client communications and information, many do not know how to do so.
The National Labor Relations Board (“NLRB”) has continued to shape social media policies and practices at work for both employers and employees through recent decisions. This article will briefly discuss several such decisions which shed light on National Labor Relations Act (“NLRA”)-protected union activities, the standards for employees’ disloyalty, and the standards for appropriate social media policies implemented by employers.
In Pier Sixty, LLC, Nos. 02-CA-068612 and 02-CA-070797, an employee of a catering company posted “obscene vulgarities” on his Facebook page regarding a manager’s mistreatment of certain employees two days before a union representation election and was fired soon thereafter.
At the risk of stating the very obvious, a severance agreement should contain releases which protect the former employer from potential lawsuits brought by the former employee and his or her heirs. Severance compensation can serve as an important transition financial resource for a former employee. Thus, it is often in both parties’ interests to reach an agreement. This article will briefly identify some of the provisions that should be considered for possible inclusion in a severance agreement.
Of possible interest to in-house and outside counsel who confront employment-related issues, NYCBA's 3rd Annual Employment Law Institute will be held on March 10, 2017 (8:15 a.m. - 5:40 p.m.) with a networking luncheon at 12:35 p.m. The panel discussions will provide a comprehensive overview of the recent trends, developments, and emerging issues in employment law. I will moderate "The Virtual Workspace" in the morning and "Social Media & Employment Law” in the afternoon. Last year there were approximately 180 attendees and more are expected this year. To view the program agenda and complete list of speakers and to register, please click below.
As is widely known, many technological advancements have been integrated into the legal industry in recent decades. Maintaining an electronic record of all information is standard operating procedure at large and small companies and law firms. Another major development, in the last half dozen or so years, in particular, has been the dramatic increase in the number of employees who telecommute one or more days a week and in many instances full time. Indeed, there are now virtual companies and law firms which maintain limited, if any, office space.
In the Digital Information Age, where electronic data containing confidential information is so easily transferable, employers face a dilemma. On the one hand, they generally want to allow employees as much access to information as possible to promote efficient and uninterrupted workflow. On the other hand, there is always the risk that employees with access to highly sensitive information may misplace hard copies and/or flash drives containing such information or purposefully take key information to use on behalf of a competing future employer, for a business they have started or intend to start, or to damage the company because of a personal vendetta.
In recent years, as the use of social media has exploded, the National Labor Relations Board (“NLRB”) has received allegations of improper discipline of employees for social media postings as well as complaints condemning employer social networking policies. We briefly discuss a few of those decisions below.
In what came to be known as “the first Facebook case,” American Medical Response of Connecticut, Inc., No. 34-CA-12576, an employee criticized her supervisor in a Facebook post for denying her Union representation, which triggered responses from co-workers voicing their support. The employee was suspended the following day and later discharged.
Many employers try to limit former employees’ actions at the conclusion of the employment relationship through restrictive covenants. A restrictive covenant is a contractual agreement restricting the post-employment activities of a former employee for a fixed period after the termination of an employment relationship in order to protect the employer’s legitimate business interests.
A. Protectable Interests
Non-compete agreements offer the widest range of protection for employers by limiting a prior employee’s ability to work for a competitor after the employment relationship ends.