Here’s a complicated situation. Suppose you do business in Florida, but have a smattering of employees in other states, like New York, California and Texas. As a condition of employment, you require a small group of particularly valuable employees to sign non-compete agreements. Not wanting to make all lawyers everywhere wealthy, you require that disputes be resolved under the laws of Florida, where most of your business happens. You could also have a consistent set of rules for resolving problems or, more importantly, for avoiding them. Nothing crazy, so far, right?
Choice of Law Provision in the Non-Compete
Not so fast. Under Brown & Brown, Inc. v. Johnson, 980 N.Y.S.2d 631 (4th Dep't 2014) for your New York employees, it appears that the enforceability of non-compete agreements will be evaluated under the principles of New York law. The decision is causing some head-scratching in the legal community because it disregards the choice-of-law provisions, dismissing Florida law as “obnoxious” to New York public policy. Ultimately, though, this decision may have more to do with how to craft an argument in litigation than how to draft a non-compete agreement.
New York Standards
The standards under which New York non-compete agreements are evaluated were set forth 15 years ago in BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). This case establishes the rule that restrictive covenants are enforceable only to the extent they:
- are no broader than necessary to protect the employer's legitimate interest,
- do not impose undue hardship on the employee, and
- do not injure the public
The difference between New York and Florida law that became important in Brown was the second factor — hardship to the employee. The court determined that barring the employee from soliciting business from anyone who was a customer, regardless of the prior relationship between them, was an undue hardship for the employee.
What do we learn, here? New York law frowns on restrictive covenants. It is very protective of the rights of employees. If you are a New York lawyer, remember to address the hardship issue in your argument. If you are a New York employer, be prepared to justify all post-employment restrictions with economic data.
But What About Choice-of-Law Provisions?
This is what makes the case so puzzling. It is not clear yet whether the problem is just with this provision of Florida law, which has now been determined to conflict with the public policy of Georgia, Illinois and Alabama, as well as New York, or with choice-of-law provisions in general. As the consequences of this decision shake out, New York employers would be well-advised to be cautious about relying on Florida law relating to non-compete agreements. It may also be worthwhile to think about other ways to reduce the risks inherent when an employee goes to work for a competitor.