A standard provision typically included in non-compete agreements is a “partial enforceability” provision that gives the Court the power to modify or “blue pencil” the terms of the agreement if the Court finds the restrictive covenant to be overly broad. For example, if a Court finds that a non-compete provision restricting an employee from working for a competitor anywhere within 100 miles of its former employer is too broad and not necessary to protect the former employer’s business interests, the partial enforceability provision would permit the Court to limit the geographic restriction to say, 10 miles, if the Court deems that narrowed limitation suitable. However, just because a partial enforceability provision is included in a non-compete agreement does not mean a Court will modify the terms to “fix” an otherwise unenforceable agreement and, many times, the Court will simply decline to enforce the agreement in its entirety.
One recent example of this came out of the Appellate Division, Second Department in Long Island Minimally Invasive Surgery, P.C. v. St. John’s Episcopal Hospital, 2018 NY Slip Op 05674 (2d Dep’t 2018) which affirmed the earlier decision of Justice Driscoll in Nassau County Supreme Court. Plaintiff was a medical practice that performed weight loss and other general surgeries. It had seven different offices throughout the New York metropolitan area. Defendant Javier Andrade was a surgeon hired by Plaintiff. Upon being hired, Andrade signed an employment agreement with a restrictive covenant prohibiting him, for two years upon the expiration of his employment, from performing any type of surgery within 10 miles of any of Plaintiff’s seven offices and affiliated hospitals. During his employment with Plaintiff, Andrade worked at only two of Plaintiff’s Nassau County offices and a hospital in Nassau County. When Andrade left Plaintiff, he went to work for Defendant St. John’s Episcopal Hospital.
Although Andrade worked for St. John’s in an area that was outside of the restricted area, St. John’s itself fell within the restricted area. As a result, Plaintiff commenced the action for breach of the restrictive covenant.
Prior to any discovery, both Andrade and St. John’s moved for summary judgment to dismiss the Complaint and their motion was granted. Plaintiff appealed. On appeal, the Appellate Division held that the lower court correctly determined that the geographical restriction was overly broad and geographically unreasonable “because it effectively barred [Andrade] for performing surgery, his chosen field of medicine, in the New York metropolitan area” and Plaintiff had failed to show why such a restriction was necessary to protect its interests especially because the restriction included areas where Andrade never even worked when he was employed by Plaintiff.
Importantly, the Appellate Division also agreed with the lower Court’s refusal to modify the restrictive covenant to make it enforceable. Citing prior decisions in Scott, Stackrow & Co., C.P.A.’s, P.C. v. Skavina, 9 A.D.3d 805 (3d Dep’t 2004) and BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), the Court noted, “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.’
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.’ ‘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.’”
In this case, the Appellate Division agreed that partial enforcement was not warranted because Plaintiff failed to show that there was good faith on its part, that there was no overreaching in having Andrade agree to the restrictive covenant which was a prerequisite to being hired, and there was also evidence from the record that Plaintiff refused to negotiate the non-compete language.
What is becoming clear from recent Court decisions on restrictive covenants, including this one, is that how and under what circumstances employers implement restrictive covenants on their employees is as important as the language contained within the restrictive covenants themselves.