Bdo Seidman v. Hirshberg - 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220 (1999)

Rule:

The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test-- a restraint is reasonable only if it: is no greater than is required for the protection of the legitimate interest of the employer; does not impose undue hardship on the employee; and is not injurious to the public. A violation of any prong renders the covenant invalid.

Facts:

The defendant was an accounting firm and the plaintiff was one of his employees between 1984 and 1993. After the plaintiff was promoted, he signed a restrictive covenant that prohibited him from serving any former clients of the defendant up until 18 months after his termination. Plaintiff sued in 1995 for breaching this agreement after he presented evidence that the defendant had stolen some of the plaintiff’s clients. The Supreme Court of New York held the restrictive convent was unenforceable and unreasonable, which was affirmed by the appellate division.

Issue:

In order for a restrictive convent to be specifically enforceable, must it be reasonable as to how long it is effective and with regard to the geographic limitations?

Answer:

Yes.

Conclusion:

In order for a restrictive convent to be specifically enforceable, it must be reasonable as to how long it is effective and the geographic limitations it places upon a signee and must be necessary to protect an employer’s legitimate interests in protecting from unfair competition and must not be unseasonably burdensome to the employee who signs it. The restrictive covenant must be protecting legitimate business interests of the employer in terms of preventing unfair competition. Unfair competition can be characterized by a former employee using business relationships he developed while employed with the employer and using that to procure clients of that previous employer. Under the blue pencil doctrine, courts may uphold parts of a restrictive covenant that do prevent unfair competition and strike parts that are unreasonable. The convent at hand prevents the defendant was working with any client of the plaintiffs and is not limited to solely those clients who he worked with. The geographic area extends to the entire area of Buffalo, New York. Thus, the agreement is unreasonable and unenforceable.