Litigation arising out of employment contracts that contain non-compete, non-disclosure/trade secret, no employee raiding or non-solicitation of customer provisions often involve high stakes, including the protection of trade secrets, the ability to practice one’s trade, the elimination of a competitor, or maintaining key client relationships. Businesses have long sought to guard against unfair competition and to protect their trade secrets and market share. Regardless of whether it was in 1414 in Dyer’s Case, where, in the first recorded restrictive covenant case, an English court refused a master’s request to preclude his apprentice from practicing his trade in London for 2 years following the end of his apprenticeship or today in New York where courts are willing to enforce a restrictive covenant agreement if reasonable in time and geographic scope, and necessary to protect the employer’s legitimate interests.
The litigation is fast and furious for the parties often get one bite at the apple to quickly secure an emergency injunction or to prevent its issuance. This, before a judge who may
appreciate the necessity for such relief , but nevertheless looks upon restrictive covenants, just as courts did in the 1400’s, with great skepticism because they can act as a restraint on trade and the free flow of ideas. Crafting and arguing a restrictive covenant case requires skill and experience, as failure can mean a loss of employment. On the employer side, decades of hard work and financial investment can be quickly undone by misappropriation of a database or the raiding of a company’s staff by a knowledgeable ex-employee.
Generally restrictive covenants are designed to protect against a company’s “legitimate business interests” including its proprietary information, trade secrets, and client relationships from unfair competition or misappropriation. Enforcement may lie in a claim for breach of contract, tort or both.
- Confidential and proprietary business information
- Customer Identity and information
- Business processes, for example, buying habits, marketing plans, formulas, sales information and pricing, product R&D and troubleshooting data, manufacturing methodologies, trading algorithms, and securities trading processes
- Customer relationships, key contacts
- Customer goodwill associated with sale of a business
- Highly specialized skills or training provided
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by an employer, compensation and staffing policies
- Vendor information
- Valid employment agreement, sale and purchase agreement for sale of business, professional practice and goodwill
- Restrictive covenant is narrowly drafted and reasonable as to time,geography and scope of activity
- Reasonable, depending on circumstances such as nature of the business, employee’s position, territory in which business has sales or operations
- The agreement is supported by adequate continuation and there is a protectable employer or seller interest
- If injunctive relief sought there must be:
- No adequate remedy at law (i.e., money damages will not suffice)
- Likelihood of success on the merits for the plaintiff
- Irreparable harm
- Balancing of the equities favors the movant
- Nature of the restrictive covenant. Non-compete harder to enforce than a no-raiding or no-solicitation of customer provision
Generally, time is of the essence in order to bring an immediate halt to the dissemination of trade secret or the loss of a client, thus a complaint and a motion for emergency injunctive relief, with or without notice to the other side is filed in a court of competent jurisdiction. In time, a complaint is often preceded by a cease and desist letter to the offending party.