A decent case from the Appellate Division, First Department — King v. Marsh & McLennan Agency, LLC (Feb. 11, 2021) — serves as a reminder that, depending on where your business is located within New York state, a different rule applies for the enforceability of your employee non-competition and non-solicitation covenants when you terminate someone without cause.
Specifically, in the King case, the First Department again recognized the governing rule for courts (and companies and employees) located within the First and Second Departments (i.e., New York City and downstate counties) that a non-competition or non-solicitation covenant is unenforceable as a matter of law where the employee is terminated without cause. See also Kolchins v. Evolution Mkts., Inc. (1st Dept., 2020) and Borne Chemical Co. v. Dictrow (2nd Dept., 1981).
However, the opposite rule exists for courts (and companies and employees) which are located within the Fourth Department (i.e., all of Western New York and parts of the Southern Tier and Finger Lakes region, including all of Buffalo, Rochester, and Syracuse).
There, as recently held in the case of Frank v. Metalico Rochester, Inc. (2019), the termination of an employee without cause does “not render the restrictive covenants in the agreement unenforceable.” See also, Brown & Brown, Inc. v. Johnson, (4th Dept., 2014), holding that a termination without cause does “not render the restrictive covenants … unenforceable.”
The divergent conclusions on this issue find their genesis in the Court of Appeals case of Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., (1979). There, New York’s highest court held — in the context of the “employee choice” doctrine (i.e., where the employee agrees that he/she will return a significant benefit in the event that he/she chooses to violate the terms of a non-competition covenant) — that the covenant cannot be enforced “where the termination of employment is involuntary and without cause.”
While the First and Second Departments have extended this holding to apply to all non-competition covenants, the Fourth Department has refused to do so and has applied the rule only to certain “employee choice” or “forfeiture for competition” provisions.
Ultimately, the Court of Appeals will need to resolve this conflict between the Appellate Divisions in New York State. However, until that occurs, a different rule will continue to exist for companies and employees, depending on where those companies and employees are located within the state, as to whether a non-competition or non-solicitation covenant can be enforced in the event of a termination without cause.
Bradley A. Hoppe is a member (partner) in the Buffalo office of Syracuse–based law firm Bond, Schoeneck & King PLLC. He is chair of Bond’s manufacturing industry group. Contact Hoppe at firstname.lastname@example.org. This article is drawn and edited from the company’s website.