Monday, August 13, 2018

REASONABLE RESTRICTIVE COVENANTS IN EMPLOYMENT AGREEMENTS



Long Is. Minimally Invasive Surgery, P.C. v St. John's Episcopal Hosp., 2018 NY Slip Op 05674, Decided on August 8, 2018, Appellate Division, Second Department:

"Agreements restricting an individual's right to work or compete are not favored and thus are strictly construed" (Goodman v New York Oncology Hematology, P.C., 101 AD3d 1524, 1526; see Morris v Schroder Capital Mgt. Intl., 7 NY3d 616, 620; BDO Seidman v Hirshberg, 93 NY2d 382, 389). " [A] restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee'" (BDO Seidman v Hirshberg, 93 NY2d at 389, quoting Reed, Roberts Assocs. v Strauman, 40 NY2d 303, 307). The determination of whether a restrictive covenant is reasonable involves the application of a three-pronged test. "A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public" (BDO Seidman v Hirshberg, 93 NY2d at 388-389 [emphasis in original]; see Ricca v Ouzounian, 51 AD3d 997, 998). The "violation of any prong renders the covenant invalid" (BDO Seidman v Hirshberg, 93 NY2d at 389). "With agreements not to compete between professionals . . . [courts] have given greater weight to the interests of the employer in restricting competition within a confined geographical area" (id.). That said, "the application of the test of reasonableness of employee restrictive covenants focuses on the particular facts and circumstances giving context to the agreement" (id. at 390). "The rationale for the differential application of the common-law rule of reasonableness . . . was that professionals are deemed to provide unique or extraordinary'" services (id. at 389, quoting Reed, Roberts Assocs. v Strauman, 40 NY2d at 308).

Here, the defendants made a prima facie showing that the provision of the covenant prohibiting Andrade for a period of two years from practicing surgery of any kind, within a 10-mile radius of all of the plaintiff's offices and affiliated hospitals, even those at which he had never worked, was geographically unreasonable, because it effectively barred him from performing surgery, his chosen field of medicine, in the New York metropolitan area (see BDO Seidman v Hirshberg, 93 NY2d at 390-391). In opposition, the plaintiff failed to raise a triable issue of fact as to whether imposing such a broad geographical restriction was necessary to protect its interests.

Contrary to the plaintiff's contention, the Supreme Court did not err in declining to modify the covenant rather than invalidating it. The determination of whether an overly broad restrictive covenant should be enforced to the extent necessary to protect an employer's legitimate interest involves "a case specific analysis, focusing on the conduct of the employer in imposing the terms of the agreement" (id. at 394). Partial enforcement may be justified if an employer demonstrates, in addition to having a legitimate business interest, "an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct" (id.). "Factors weighing against partial enforcement are the imposition of the covenant in connection with hiring or continued employment—as opposed to, for example, imposition in connection with a promotion to a position of responsibility and trust—the existence of coercion or a general plan of the employer to forestall competition, and the employer's knowledge that the covenant was overly broad" (Scott, Stackrow & Co., C.P.A.'s, P.C. v Skavina, 9 AD3d 805, 807-08; see BDO Seidman v Hirshberg, 93 NY2d at 395). Application of the factors set forth in BDO Seidman militates against partial enforcement here. The plaintiff has not demonstrated, or even argued, an absence of anticompetitive misconduct on its part, asserting instead that because the restrictive covenant can be partially enforced, it should be. The fact that the covenant is clearly overbroad casts doubt on the plaintiff's good faith in imposing it (see Brown & Brown, 158 AD3d 1148). Moreover, it is undisputed that the plaintiff, from a superior bargaining position, required Andrade to sign the employment agreement as a prerequisite to being hired, and it refused to negotiate the covenant."

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