COMMON LAW AND EMPLOYMENT CONTRACT RENEWAL

Kushner v. CARTER LEDYARD & MILBURN LLP, 2023 NY Slip Op 30171 - NY Co. Supreme Court 2023:

"Where an employment agreement is for a definite term, upon expiration of that term, should the employee remain with the employer on the same terms, the common law recognizes a presumption that the parties intend to renew the contract and a one-year agreement to continue under the same terms is implied. (see Goldman v White Plains Ctr. for Nursing Care, LLC, 11 NY3d 173, 177 [2008]; Perlick v Tahari, Ltd., 293 AD2d 275, 276 [1st Dept 2002].) However, "the common-law rule cannot be used to imply that there was mutual and silent assent to automatic contract renewal when an agreement imposes an express obligation on the parties to enter into a new contract to extend the term of employment" (Goldman, 11 NY3d at 178). "The best evidence of what parties to a written agreement intend is what they say in their writing" (Banco Espírito Santo, S.A. v Concessionária Do Rodoanel Oeste S.A., 100 AD3d 100, 106 [1st Dept 2012] [internal quotation marks and citation omitted].)

Here, the common-law presumption is operative. The 2017 Agreement is for a definite term, "ending March 31, 2018" (2017 Agreement, ¶ 1). Thus, unless the parties expressed a contrary intention, their continued performance would have created an implied contract on the same terms for successive one-year terms. (see Goldman, 11 NY3d at 177; Perlick, 293 AD2d at 276). Defendant does not point to anything in the 2017 Agreement that rebuts this presumption. While the 2017 Agreement partially provides for a process to extend the relationship, stating that "[i]f the Firm wishes to enter into a further agreement ... it shall propose terms and conditions at least sixty (60) days before the Ending Date" (2017 Agreement, ¶ 1), it does not provide for what happens in the event that the firm fails to do so. Likewise, while it states that, "[i]f no further agreement is reached ... concerning [plaintiff's] relationship to the Firm," plaintiff "shall cease to be a Partner of the Firm" as of the ending date, it does not state how "further agreement" is to be reached or what form it should take (id.). Moreover, the 2017 Agreement does not: provide that all obligations between the parties are at an end upon the expiration of the initial term; contain an integration clause; and/or require that all changes be made in writing.

Generally, in cases holding that automatic renewal may not be implied, such language is present. For example, in Goldman, the court held that the common-law presumption was rebutted "where the employer and employee agree[d] that the contract memorializes their understanding, [could] be modified only in writing and expire[d] on a specified date absent additional negotiations for a new agreement" (11 NY3d at 178). The contract in that case also provided that, upon expiration, "the employer would have no further obligations to plaintiff other than compensating her for accrued salary and benefits" (id. at 177). Likewise, in Holahan v 488 Performance Group, Inc., the court held that the "breach of contract claim fail[ed] as a matter of law," because the employment agreement "unambiguously provided that any extension of the agreement needed to be in writing" and no such writing existed (140 AD3d 414, 414 [1st Dept 2016]; see A Great Choice Lawncare & Landscaping, LLC v Carlini, 167 AD3d 1363, 1364-1365 [3d Dept 2018] [concluding that there was no contract to breach following the end date, where "the employment agreement ma(de) clear that its terms constitute(d) the entire contract, provide(d) for no renewals beyond the one-year renewal term and only permit(ed) modifications to the agreement, such as extending its provisions, if made in writing"]; see also Wood v Long Is. Pipe Supply, Inc., 82 AD3d 1088, 1089 [2d Dept 2011] [finding that no employment agreement existed at the time of the plaintiff's termination, where the agreement "clearly expressed that the term of the plaintiffs employment was for five years [,] ... that the written agreement completely encompassed the agreement between them" and that "any changes to the contract were required to be in writing"].) Here, unlike the cited cases, nothing on the face of the agreement unambiguously indicates that the parties understood that the 2017 Agreement would end unless there was an express renewal. Accordingly, the common-law presumption of an automatic one-year renewal is applicable (see Goldman, 11 NY3d at 178 [explaining that the application of the common-law presumption of automatic renewal was appropriate in cases where "its application did not contradict any express provision of the agreements"].)

Plaintiff sufficiently alleges that the 2017 Agreement renewed for two successive one-year terms, once on April 1, 2018, and again on April 1, 2019, by alleging that he continued in his position as a partner and chair of the firm's tax department, receiving the previously agreed upon compensation, until January 2020 (see Perlick, 293 AD2d at 276 [finding that the plaintiff's breach of contract claim was viable if the writing at issue "constituted an employment contract with a term of one year" as then plaintiff would have been employed for two one-year terms]). Therefore, plaintiff's allegation that—in January 2020, during the second renewal period—CLM unilaterally reduced his monthly base salary by $5,000.00, states a claim for breach of contract.

However, the downward adjustment to plaintiff's salary in January 2020 also negates any implied agreement to renew the 2017 Agreement for a third one-year term. No such renewal can be implied as of April 1, 2020. (see Schiano v Marina, Inc., 103 AD3d 462, 463 [1st Dept 2013] [explaining that changes to the plaintiff's pay and responsibilities constituted "material changes," preventing automatic renewal of the employment agreement]; Curren v Carbonic Sys., Inc., 58 AD3d 1104, 1108 [3d Dept 2009] [finding that salary increases "constituted changes in material terms of the contract, further supporting the finding that the parties did not intend the contract to automatically renew"].) Upon the expiration of the second one-year term, on March 31, 2020, plaintiff became an at-will employee (see Schiano, 103 AD3d at 463). As of April 1, 2020, there was no contract in effect for defendant to breach. Therefore, plaintiffs allegation, that, in April 2020, defendant terminated the 2017 Agreement without sufficient notice and without cause, does not state a claim for breach of contract (see id. [explaining that once the plaintiff's employment became at-will, "her termination would not constitute a breach of contract"]; see also Curren, 58 AD3d at 1108-1109 [same])."

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."