Employer Failed to Justify Injunction Enforcing Restrictive Covenant With Former Employee

On February 7, 2019, the First Department issued a decision in Harris v. Patients Med., P.C., 2019 NY Slip Op. 00974, holding that an employer had failed to justify an injunction enforcing a restrictive covenant with a former employee, explaining:

A preliminary injunction is an extraordinary provisional remedy which will only issue where the proponent demonstrates (1) a likelihood of success on the merits, (2) irreparable injury absent a preliminary injunction, and (3) a balance of equities tipping in its favor. The granting of such relief is committed to the sound discretion of the motion court. Here, the court providently exercised its discretion in denying a preliminary injunction.

Patients Medical has not demonstrated a likelihood of success on the merits. Under New York law, 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. In cases between professionals, courts recognize the legitimate interest an employer has against unfair competition, but, to avoid broad restraints on competition, have limited such employer interests to the protection against misappropriation of the employer's trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary. We have found restrictive covenants to be unenforceable where the employees have not used the employers' confidential business information, or where the employees' services were not extraordinary or unique.

Patients Medical has not established that Harris's OB/GYN and ancillary services are unique or extraordinary such that they gave her an unfair advantage over its practice. Patients Medical has not demonstrated an unfair competitive advantage as it is undisputed that Harris brought her own OB/GYN practice to Patients Medical and that Patients Medical did not offer OB/GYN care after Harris left the practice. Accordingly, Patients Medical has not shown that the restrictive covenants were necessary to protect its legitimate interests.

We find that irreparable harm is not established as monetary damages is an adequate remedy. Moreover, the equities tip in Harris' favor. Granting a preliminary injunction would disrupt the physician-patient relationship she has with her current patients.

(Internal quotations and citations omitted).

Non-compete provisions are subject to a number of limitations, as this decision discusses, and particularly so when a former employer seeks to enforce them through an injunction. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the enforcement of an employment contract.