Non-Competition, Non-Solicitation and Non-Disclosure Agreements

Generally speaking, employment agreements in California are void as unlawful restraints on 'profession, trade or business' as codified in Section 16600 of the California Business & Professions Code. However, there are a few exceptions to this general rule contained in Section 16601 and 16602, which allow non-competition agreements in connection with the sale of a business or partnership interest, the sale of stock by a majority shareholder in a corporation, and other business-related transactions. In addition, Section 16660 does not permit a former employee to use the former employer's trade secrets, which conduct may be prohibited by a 'proprietary information agreement' or 'non-disclosure agreement' as opposed to a traditional non-competition agreement.

The Ninth Circuit has, traditionally, interpreted Section 16600 in a lenient manner, allowing an employer to have a non-competition agreement as long as the provision posed only a 'narrow restraint' on the former employee's activities in a narrow section of the market. See, e.g., Campbell v. Board of Trustees of Stanford Univ., 817 F.2d 499 (9th Cir. 1987). However, in Edwards v. Arthur Anderson, LLP, 2006 Cal. App. LEXIS 1320, *3 (Aug. 30, 2006), the California Court of Appeals specifically rejected the notion that a non-competition agreement which posed only a narrow restraint could be enforceable, unless the agreement fell within one of the statutory exceptions mentioned above.

The Supreme Court of California granted review of the Edwards decision, suspending the application of that decision as precedent, at least for the time being.

However, a similar ruling was issued by the California Fourth Circuit Appeals Court in Strategix v. Infocrossing, 142 Cal. App. 4th 827 (2006), with respect to a non-solicitation covenant. In that case, although the non-solicitation agreement was given by the seller and its parent company in connection with the sale of the assets and goodwill of Strategix, which traditionally would be permissible under Section 16601 because the agreement included non-solicitation of all of the buyer's employees and customers, the court found the agreement overly broad and unenforceable. Moreover, the court refused to 'blue pencil' the agreement and eliminate only the overly broad provision.

Florida

In Florida, the enforceability of restrictive covenants is controlled by the statute in effect at the time the agreement was executed. See Cooper v. Thomas Craig & Co., 906 So. 2d 378, 379 (Fla. 2d Dist. Ct. App. 2005). There are three separate sets of rules that could apply, depending on when the covenant was executed, the most recent of which is Fla. Stat. Ann. '542.335 (West 1996 Supp.) Practitioners should be aware that a prior statute will control if the agreement predates the enactment of the 1996 statute discussed below.

Under the 1996 statute, restrictive covenants are enforceable only to the extent they are necessary to protect the employer's legitimate business interests. Fla. Stat. Ann. ' 542.335(1)(b). Those interests are defined as, but not limited to, the following: 1) trade secrets; 2) valuable confidential business or professional information that otherwise does not qualify as a trade secret; 3) substantial relationships with specific prospective or existing customers, patients or clients; 4) customer, patient or client goodwill associate with: a) an ongoing business by way of a trade name; trade mark, service mark or 'trade dress'; b) a specific geographic location; c) a specific marketing or trade area; or 5) extraordinary or specialized training. Id.

The statute further creates a presumption that a restrictive covenant (not related to protection of trade secrets) against a former employee, which contains a restrictive period of 6 months or less, is presumptively a reasonable restraint. A period of two years or more is presumptively an unreasonable restraint. If the covenant sought to be enforced was given by a former distributor, dealer, franchisee, or licensee of a trademark or service mark, the presumptive reasonable period of restraint is extended to one year or less and unreasonableness is presumed when the period is in excess of three years. In the case of a restrictive covenant sought in connection with the sale of the assets, stock or other forms of ownership of equity interest of a business, a restraint of three years or less is presumptively reasonable, while seven years or more is presumptively unreasonable. With respect to a restrictive covenant related to trade secrets, a presumption of reasonableness exists for a covenant that restrains activity for five years or less, while unreasonableness is presumed for any restraint of more than 10 years. The presumptions with respect to trade secrets are rebuttable. Fla. Stat. Ann. ' 542.335(1)(d)(1)-(3).

If an employer can demonstrate a violation of an enforceable restrictive covenant, it is entitled to a presumption of irreparable injury. Fla. Stat. Ann. '542.335(1)(j). No temporary restraining order or preliminary injunction will be given unless the party seeking relief posts a bond, and any agreement waiving the requirement of a bond will be unenforceable. Id.

Finally, Florida's statute grants the court broad discretion to award attorneys' fees and costs to the prevailing party.

Illinois

In contrast to Florida and California, Illinois has no statute controlling the enforceability of noncompete and other restrictive covenants. In Illinois, an employer's legitimate business interests have been very narrowly limited to: 1) customer relationships that are near-permanent, and but for the employee's association with the employer, the employee would not have had contact with the customers; and 2) where the former employee acquired trade secrets or other confidential information through his employment and subsequently tried to use it for his own benefit. Capsonic Group v. Swick, Ill. App. 3d 988, 993, 537 N.E.2d 1378 (1989).

The courts in Illinois have developed two tests for establishing whether an employer has a near-permanent relationship with its customers and clients. The first test utilizes the following seven factors deemed by the courts as relevant to the determination: 1) the number of years required to develop the clientele; 2) the amount of money invested to acquire clients; 3) the degree of difficultly acquiring clients; 4) the extent of personal customer contact by the employee; 5) the extent of the employer's knowledge of its clients; 6) the duration of the customers' association with the employer; and 7) the continuity of the employer-customer relationship. Springfield Rare Coin Galleries, Inc. v. Mileham, 250 Ill. App. 3d 922, 620 N.E.2d 479, 485 (4th Dist. 1993).

The second test analyzes the nature of the business at issue. For example, courts have found that a near-permanent relationship is inherent in the provision of professional services. See, e.g., Nationwide Advertising Services, Inc. v. Kolar, 14 Ill. App. 3d 522, 528, 302 N.E.2d 734, 738 (1973). In contrast, Illinois courts have found that such a relationship is absent in businesses engaged in sales, or in businesses that do not develop customer loyalty by providing a unique product or personal service. See Office Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d 557, 568, 599 N.E.2d 1072 (1992). Moreover, when the names of employer's customers are readily ascertainable by reference to a telephone directory or other publication, or are widely known by competitors throughout the industry, an employer will generally be unable to establish that the former employee would not have had contact with the client or customer but for the employment relationship. See, e.g., Image Supplies, Inc. v. Hilmert, 71 Ill. App. 3d 710, 714-15, 390 N.E.2d 68, 72 (1979).

Massachusetts

Massachusetts has no statute specifically governing the enforceability of restrictive covenants. In Massachusetts, restrictive covenants are only enforceable to the extent necessary to protect an employer's legitimate business interests. Marine Contractors Co. v. Hurley, 365 Mass. 280, 287 (1974). Legitimate business interests have been defined by courts in Massachusetts as trade secrets, confidential information and goodwill generally developed through dealing with customers or clients. National Hearing Aid Centers, Inc. v. Avers, 2 Mass. App. Ct. 285, 293 (1974). Protection from ordinary competition, as opposed to unfair competition, is not considered a legitimate business interest in Massachusetts. Richmond Brothers, Inc. v. Westinghouse Broadcasting Co., 357 Mass. 106, 111 (1970).

The court in Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835 (1972), set forth the following six-step analysis to determine whether information is, in fact, confidential:

• the extent to which the information is known outside of the business;
• the extent to which it is known by employees and others involved in the business;
• the extent of measures taken to guard the secrecy of the information;
• the value of the information to the employer and its competitors;
• the amount of effort or money expended by the employer in developing the information; and
• the ease or difficulty with which the information could be properly acquired or duplicated by others. Id. at 840.

Goodwill has been defined in Masaschusetts as the employer's 'positive reputation in the eyes of its customers or potential customers ' [and] is generated by repeat business with existing customers or by referrals to potential customers.' Cypress Group, Inc. v. Stride & Associates, Inc., 17 Mass. L. Rptr. 436, 2004 WL 616302, at * 3 (Mass. Super. Ct. Feb. 11, 2004). In contrast, Massachusetts courts have also declined to enforce non-competition and non-solicitation covenants when to do so would have effectively allowed the employer to appropriate the employee's goodwill with the customer or client. See, e.g., Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 708 (1982) and Getman v. USI Holdings Corp., 19 Mass. L. Rptr. 679, 2005 WL 2183159, *4 (Mass. Super. Ct. Sept. 1, 2005).

Practitioners should be aware that employment agreements in Massachusetts are scrutinized carefully and are strictly construed against the employer to ensure that they go no further than necessary to protect an employer's legitimate business interests as those interests have been defined above. Alexander & Alexander, Inc. v. Danahy, 21 Mass. Ct. App. 488, 496 (1986). Moreover, the agreement must be supported by adequate consideration. All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). Courts in Massachusetts have recently found that a change in a material term of employment, such as job title and responsibilities, can cause a previously executed non-compete to be rendered unenforceable. See, e.g., Cypress Group, 2004 WL 616203, at *3 and Lycos, Inc. v. Jackson, 18 Mass. L. Rptr. 256 (Mass. Super. Ct. 2004). Therefore, when a material term of the employment relationship changes in Massachusetts, it is advisable for employers to enter into a new employment agreement.

New York

There is no statute directly governing the enforceability of restrictive covenants in New York. Generally speaking, in New York a former employer has a protectable interest in the goodwill of its business. Skaggs-Walsh, Inc. v. Chmiel, 638 N.Y.S.2d 698 (2d Dep't 1996). The employer's goodwill has been defined by courts as long-term relationships with the employer's clients. Johnson Controls, Inc. v. A.P.T. Critical Sys. Inc., 323 F.Supp. 2d 525, 532 (S.D.N.Y. 2004).

An employer also has a protectable interest in trade secrets and confidential material. See Data Sys. Computer Centre v. Tempesta, 171 A.D.2d 724, 725, 566 N.Y.S.2d 955, 957 (2d Dept. 1991). Likewise, an employer is entitled to protect its legitimate interest where the employee's skills were 'unique or extraordinary.' Briskin v. All Seasons Servs., Inc., 615 N.Y.S.2d 166, 167 (App. Div. 4th Dept. 1994). A high level of knowledge or experience associated with sales personnel generally falls short of establishing the unique or extraordinary skills required to restrict a former employee from competing in New York. See, e.g, Data Sys., 556 N.Y.S.2d at 957.

In New York, restrictive covenants 'will be enforced only if reasonably limited temporally and geographically ' and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customers lists.' Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 398 N.Y.S.2d 1004, 1006, 339 N.E.2d 4 (1977). An employer also has a legitimate interest in preventing an employee's competitive use client relationships developed during, but not before, the employment relationship. BDO Siedman v. Hirshberg, 690 N.Y.S.2d 854, 859, 712 N.E.2d 1220, 1225 (1999). As in Massachusetts, to the extent an employee can demonstrate that the client relationship at issue is a product of his or her goodwill, as opposed to that of the employer, courts in New York will not enforce the restrictive covenant against the former employee. Willis of New York, Inc. v. DeFelice, 299 A.D.2d 240, 242, 750 N.Y.S.2d 39, 42 (1st Dept. 2002).

Although courts in most jurisdictions are reluctant to restrain an employee from working in the absence of a non-compete, there are circumstances where an injunction can be obtained against a former employee without such an agreement. For example, in EarthWeb, Inc. v. Schlack, the court held that an employer could enjoin a former employee from working for a competitor, where the employee possessed highly confidential or technical knowledge concerning manufacturing processes, marketing strategies, or the like rendering the disclosure of the employer's trade secrets 'inevitable.' Id., 71 F.Supp.2d 299, 309 (S.D.N.Y.1999), remanded, 205 F.3d 1322 (table), 2000 WL 232057 (2d Cir.), aff'd, 2000 WL 1093320 (2d Cir. June 12, 2000). The court in Earthweb set forth several factors that could justify the issuing of injunctive relief, including: 1) whether the former and current employers are direct competitors providing the same or very similar products or services; 2) whether the employee's new position is nearly identical to his old one, such that it would be almost impossible for him to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; 3) whether the trade secrets at issue are highly valuable to both employers; and (4) the nature of the industry and trade secrets at issue. Id.

Conclusion

The states discussed herein have taken varying approaches to the law of restrictive covenants, some by codifying the requirements and others by developing common law precedent. Practitioners who advise clients with a business presence in more than one jurisdiction should be aware of how each jurisdiction approaches restrictive covenants (including whether the law of a particular jurisdiction is typically applied by the court), and in some instances, whether they are even permitted. Likewise, counsel that are familiar with how various states have addressed restrictive covenants will be better able to negotiate on behalf of employees to obtain less restrictive covenants, and in appropriate circumstances, demonstrate to the potential employer that a restrictive covenant is unnecessary.

Rosanna Sattler, a member of this newsletter's Board of Editors, is Co-Chair of Posternak Blankstein & Lund LLP's Employment Law Group and a member of the firm's Litigation Practice. Joseph Corrigan is an associate in the firm's Employment Practice Group and Litigation Department. The firm is located in Boston.

When negotiating non-competition, non-solicitation and non-disclosure agreements, there are many issues that should be taken into consideration, regardless of whether counsel is given to the employer or employee. For example, is the agreement or restrictive covenant necessary to protect the employer's legitimate business interests? Is the agreement supported by adequate consideration? Is the restrictive covenant reasonably limited as to time and geographical location in which the conduct is prohibited? What law will apply to the agreement?

Employers throughout the country are expanding their businesses into new jurisdictions, and practitioners must remain current with the laws of the jurisdiction in which the businesses operate and, more importantly, the jurisdictions covered by the employment agreement. Below is a discussion of employment statutes, recent case law developments in representative jurisdictions and some general considerations for practitioners when negotiating or seeking to enforce non-competition, non-solicitation and non-disclosure agreements in various states.

California

Generally speaking, employment agreements in California are void as unlawful restraints on 'profession, trade or business' as codified in Section 16600 of the California Business & Professions Code. However, there are a few exceptions to this general rule contained in Section 16601 and 16602, which allow non-competition agreements in connection with the sale of a business or partnership interest, the sale of stock by a majority shareholder in a corporation, and other business-related transactions. In addition, Section 16660 does not permit a former employee to use the former employer's trade secrets, which conduct may be prohibited by a 'proprietary information agreement' or 'non-disclosure agreement' as opposed to a traditional non-competition agreement.

The Ninth Circuit has, traditionally, interpreted Section 16600 in a lenient manner, allowing an employer to have a non-competition agreement as long as the provision posed only a 'narrow restraint' on the former employee's activities in a narrow section of the market. See, e.g., Campbell v. Board of Trustees of Stanford Univ. , 817 F.2d 499 (9th Cir. 1987). However, in Edwards v. Arthur Anderson, LLP, 2006 Cal. App. LEXIS 1320, *3 (Aug. 30, 2006), the California Court of Appeals specifically rejected the notion that a non-competition agreement which posed only a narrow restraint could be enforceable, unless the agreement fell within one of the statutory exceptions mentioned above.

The Supreme Court of California granted review of the Edwards decision, suspending the application of that decision as precedent, at least for the time being.

However, a similar ruling was issued by the California Fourth Circuit Appeals Court in Strategix v. Infocrossing , 142 Cal. App. 4th 827 (2006), with respect to a non-solicitation covenant. In that case, although the non-solicitation agreement was given by the seller and its parent company in connection with the sale of the assets and goodwill of Strategix, which traditionally would be permissible under Section 16601 because the agreement included non-solicitation of all of the buyer's employees and customers, the court found the agreement overly broad and unenforceable. Moreover, the court refused to 'blue pencil' the agreement and eliminate only the overly broad provision.

Florida

In Florida, the enforceability of restrictive covenants is controlled by the statute in effect at the time the agreement was executed. See Cooper v. Thomas Craig & Co. , 906 So. 2d 378, 379 (Fla. 2d Dist. Ct. App. 2005). There are three separate sets of rules that could apply, depending on when the covenant was executed, the most recent of which is Fla. Stat. Ann. '542.335 (West 1996 Supp.) Practitioners should be aware that a prior statute will control if the agreement predates the enactment of the 1996 statute discussed below.

Under the 1996 statute, restrictive covenants are enforceable only to the extent they are necessary to protect the employer's legitimate business interests. Fla. Stat. Ann. ' 542.335(1)(b). Those interests are defined as, but not limited to, the following: 1) trade secrets; 2) valuable confidential business or professional information that otherwise does not qualify as a trade secret; 3) substantial relationships with specific prospective or existing customers, patients or clients; 4) customer, patient or client goodwill associate with: a) an ongoing business by way of a trade name; trade mark, service mark or 'trade dress'; b) a specific geographic location; c) a specific marketing or trade area; or 5) extraordinary or specialized training. Id.

The statute further creates a presumption that a restrictive covenant (not related to protection of trade secrets) against a former employee, which contains a restrictive period of 6 months or less, is presumptively a reasonable restraint. A period of two years or more is presumptively an unreasonable restraint. If the covenant sought to be enforced was given by a former distributor, dealer, franchisee, or licensee of a trademark or service mark, the presumptive reasonable period of restraint is extended to one year or less and unreasonableness is presumed when the period is in excess of three years. In the case of a restrictive covenant sought in connection with the sale of the assets, stock or other forms of ownership of equity interest of a business, a restraint of three years or less is presumptively reasonable, while seven years or more is presumptively unreasonable. With respect to a restrictive covenant related to trade secrets, a presumption of reasonableness exists for a covenant that restrains activity for five years or less, while unreasonableness is presumed for any restraint of more than 10 years. The presumptions with respect to trade secrets are rebuttable. Fla. Stat. Ann. ' 542.335(1)(d)(1)-(3).

If an employer can demonstrate a violation of an enforceable restrictive covenant, it is entitled to a presumption of irreparable injury. Fla. Stat. Ann. '542.335(1)(j). No temporary restraining order or preliminary injunction will be given unless the party seeking relief posts a bond, and any agreement waiving the requirement of a bond will be unenforceable. Id.

Finally, Florida's statute grants the court broad discretion to award attorneys' fees and costs to the prevailing party.

Illinois

In contrast to Florida and California, Illinois has no statute controlling the enforceability of noncompete and other restrictive covenants. In Illinois, an employer's legitimate business interests have been very narrowly limited to: 1) customer relationships that are near-permanent, and but for the employee's association with the employer, the employee would not have had contact with the customers; and 2) where the former employee acquired trade secrets or other confidential information through his employment and subsequently tried to use it for his own benefit. Capsonic Group v. Swick, Ill. App. 3d 988, 993, 537 N.E.2d 1378 (1989).

The courts in Illinois have developed two tests for establishing whether an employer has a near-permanent relationship with its customers and clients. The first test utilizes the following seven factors deemed by the courts as relevant to the determination: 1) the number of years required to develop the clientele; 2) the amount of money invested to acquire clients; 3) the degree of difficultly acquiring clients; 4) the extent of personal customer contact by the employee; 5) the extent of the employer's knowledge of its clients; 6) the duration of the customers' association with the employer; and 7) the continuity of the employer-customer relationship. Springfield Rare Coin Galleries, Inc. v. Mileham , 250 Ill. App. 3d 922, 620 N.E.2d 479, 485 (4th Dist. 1993).

The second test analyzes the nature of the business at issue. For example, courts have found that a near-permanent relationship is inherent in the provision of professional services. See , e.g. , Nationwide Advertising Services, Inc. v. Kolar , 14 Ill. App. 3d 522, 528, 302 N.E.2d 734, 738 (1973). In contrast, Illinois courts have found that such a relationship is absent in businesses engaged in sales, or in businesses that do not develop customer loyalty by providing a unique product or personal service. See Office Mates 5, North Shore, Inc. v. Hazen , 234 Ill. App. 3d 557, 568, 599 N.E.2d 1072 (1992). Moreover, when the names of employer's customers are readily ascertainable by reference to a telephone directory or other publication, or are widely known by competitors throughout the industry, an employer will generally be unable to establish that the former employee would not have had contact with the client or customer but for the employment relationship. See, e.g. , Image Supplies, Inc. v. Hilmert , 71 Ill. App. 3d 710, 714-15, 390 N.E.2d 68, 72 (1979).

Massachusetts

Massachusetts has no statute specifically governing the enforceability of restrictive covenants. In Massachusetts, restrictive covenants are only enforceable to the extent necessary to protect an employer's legitimate business interests. Marine Contractors Co. v. Hurley, 365 Mass. 280, 287 (1974). Legitimate business interests have been defined by courts in Massachusetts as trade secrets, confidential information and goodwill generally developed through dealing with customers or clients. National Hearing Aid Centers, Inc. v. Avers , 2 Mass. App. Ct. 285, 293 (1974). Protection from ordinary competition, as opposed to unfair competition, is not considered a legitimate business interest in Massachusetts. Richmond Brothers, Inc. v. Westinghouse Broadcasting Co. , 357 Mass. 106, 111 (1970).

The court in Jet Spray Cooler, Inc. v. Crampton , 361 Mass. 835 (1972), set forth the following six-step analysis to determine whether information is, in fact, confidential:

• the extent to which the information is known outside of the business;
• the extent to which it is known by employees and others involved in the business;
• the extent of measures taken to guard the secrecy of the information;
• the value of the information to the employer and its competitors;
• the amount of effort or money expended by the employer in developing the information; and
• the ease or difficulty with which the information could be properly acquired or duplicated by others. Id. at 840.

Goodwill has been defined in Masaschusetts as the employer's 'positive reputation in the eyes of its customers or potential customers ' [and] is generated by repeat business with existing customers or by referrals to potential customers.' Cypress Group, Inc. v. Stride & Associates, Inc. , 17 Mass. L. Rptr. 436, 2004 WL 616302, at * 3 (Mass. Super. Ct. Feb. 11, 2004). In contrast, Massachusetts courts have also declined to enforce non-competition and non-solicitation covenants when to do so would have effectively allowed the employer to appropriate the employee's goodwill with the customer or client. See, e.g. , Sentry Ins. v. Firnstein , 14 Mass. App. Ct. 706, 708 (1982) and Getman v. USI Holdings Corp. , 19 Mass. L. Rptr. 679, 2005 WL 2183159, *4 (Mass. Super. Ct. Sept. 1, 2005).

Practitioners should be aware that employment agreements in Massachusetts are scrutinized carefully and are strictly construed against the employer to ensure that they go no further than necessary to protect an employer's legitimate business interests as those interests have been defined above. Alexander & Alexander, Inc. v. Danahy , 21 Mass. Ct. App. 488, 496 (1986). Moreover, the agreement must be supported by adequate consideration. All Stainless, Inc. v. Colby , 364 Mass. 773, 778 (1974). Courts in Massachusetts have recently found that a change in a material term of employment, such as job title and responsibilities, can cause a previously executed non-compete to be rendered unenforceable. See, e.g., Cypress Group , 2004 WL 616203, at *3 and Lycos, Inc. v. Jackson , 18 Mass. L. Rptr. 256 (Mass. Super. Ct. 2004). Therefore, when a material term of the employment relationship changes in Massachusetts, it is advisable for employers to enter into a new employment agreement.

New York

There is no statute directly governing the enforceability of restrictive covenants in New York. Generally speaking, in New York a former employer has a protectable interest in the goodwill of its business. Skaggs-Walsh, Inc. v. Chmiel , 638 N.Y.S.2d 698 (2d Dep't 1996). The employer's goodwill has been defined by courts as long-term relationships with the employer's clients. Johnson Controls, Inc. v. A.P.T. Critical Sys. Inc. , 323 F.Supp. 2d 525, 532 (S.D.N.Y. 2004).

An employer also has a protectable interest in trade secrets and confidential material. See Data Sys. Computer Centre v. Tempesta , 171 A.D.2d 724, 725, 566 N.Y.S.2d 955, 957 (2d Dept. 1991). Likewise, an employer is entitled to protect its legitimate interest where the employee's skills were 'unique or extraordinary.' Briskin v. All Seasons Servs., Inc. , 615 N.Y.S.2d 166, 167 (App. Div. 4th Dept. 1994). A high level of knowledge or experience associated with sales personnel generally falls short of establishing the unique or extraordinary skills required to restrict a former employee from competing in New York. See, e.g, Data Sys., 556 N.Y.S.2d at 957.

In New York, restrictive covenants 'will be enforced only if reasonably limited temporally and geographically ' and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customers lists.' Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp. , 398 N.Y.S.2d 1004, 1006, 339 N.E.2d 4 (1977). An employer also has a legitimate interest in preventing an employee's competitive use client relationships developed during, but not before, the employment relationship. BDO Siedman v. Hirshberg , 690 N.Y.S.2d 854, 859, 712 N.E.2d 1220, 1225 (1999). As in Massachusetts, to the extent an employee can demonstrate that the client relationship at issue is a product of his or her goodwill, as opposed to that of the employer, courts in New York will not enforce the restrictive covenant against the former employee. Willis of New York, Inc. v. DeFelice , 299 A.D.2d 240, 242, 750 N.Y.S.2d 39, 42 (1st Dept. 2002).

Although courts in most jurisdictions are reluctant to restrain an employee from working in the absence of a non-compete, there are circumstances where an injunction can be obtained against a former employee without such an agreement. For example, in EarthWeb, Inc. v. Schlack, the court held that an employer could enjoin a former employee from working for a competitor, where the employee possessed highly confidential or technical knowledge concerning manufacturing processes, marketing strategies, or the like rendering the disclosure of the employer's trade secrets 'inevitable.' Id., 71 F.Supp.2d 299, 309 (S.D.N.Y.1999), remanded, 205 F.3d 1322 (table), 2000 WL 232057 (2d Cir.), aff'd, 2000 WL 1093320 (2d Cir. June 12, 2000). The court in Earthweb set forth several factors that could justify the issuing of injunctive relief, including: 1) whether the former and current employers are direct competitors providing the same or very similar products or services; 2) whether the employee's new position is nearly identical to his old one, such that it would be almost impossible for him to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; 3) whether the trade secrets at issue are highly valuable to both employers; and (4) the nature of the industry and trade secrets at issue. Id.

Conclusion

The states discussed herein have taken varying approaches to the law of restrictive covenants, some by codifying the requirements and others by developing common law precedent. Practitioners who advise clients with a business presence in more than one jurisdiction should be aware of how each jurisdiction approaches restrictive covenants (including whether the law of a particular jurisdiction is typically applied by the court), and in some instances, whether they are even permitted. Likewise, counsel that are familiar with how various states have addressed restrictive covenants will be better able to negotiate on behalf of employees to obtain less restrictive covenants, and in appropriate circumstances, demonstrate to the potential employer that a restrictive covenant is unnecessary.

Rosanna Sattler, a member of this newsletter's Board of Editors, is Co-Chair of Posternak Blankstein & Lund LLP's Employment Law Group and a member of the firm's Litigation Practice. Joseph Corrigan is an associate in the firm's Employment Practice Group and Litigation Department. The firm is located in Boston.