Claim for Breach of Noncompetition Covenant Dismissed Because Former Employee Was Not Unique and Because Covenant Was Overbroad

On July 5, 2024, Justice Andrea Masley of the New York County Commercial Division issued a decision in Multiplier Inc. v. Morena, et al., Index No. 653428/2022, granting a former employee's motion to dismiss a cause of action for breach of a noncompetition covenant on the ground that the former employee was not unique or irreplaceable, and also on the ground that the covenant was overbroad, explaining:

As to whether Moreno's services were unique and extraordinary, Harness alleges that Moreno was responsible for developing and administering Harness For Employees, contributed to software development, and eventually became the face of the program. (Id.19-21.) However, there are no allegations that Moreno was "irreplaceable and that the [her] departure caused some special harm to" Harness. (Pure Power Boot Camp, Inc. v Warrior Fitness Boot Camp, LLC, 813 F Supp 2d 489, 510 [SDNY 2011] [citation omitted]; see H & R Recruiters v Kirkpatrick, 243 AD2d 680, 681 [2d Dept 1997] ["the employee's services [must be] ... truly special, unique or extraordinary, and not merely of high value to his or her employer" (citation omitted)].) There are no allegations that Moreno had special value to Harness because of any relationships she developed with the clients or that she specifically developed a special or unique relationship with Harness' clients. ( See Henson Group, Inc. v Stacy, 66 AD3d 611, 612 [1st Dept 2009] ["defendant's services were unique or irreplaceable in that, although the technical services he performed could have been done by others, his special value was in his relationships with Microsoft personnel" (citation omitted)]; Contempo Communications, Inc. v MJM Creative Servs., Inc., 182 AD2d 351, 354 [1st Dept 1992] [restrictive covenants was "necessary to protect the employer in view of the 'special relationship' which developed between the individual defendants and their clients"], Iv denied 588 NYS2d 1003 [1992].) The allegation that Moreno was "the face of the program" as a result of her direct interaction with Harness' clients is insufficient. (NYSCEF 7, Complaint 21.) Direct interaction with clients does not automatically equate to the creation of a special or unique relationship.

Harness also fails to allege that it had a legitimate interest in protecting its goodwill. Absent from the complaint are any allegations that Moreno developed and maintained any relationships with Harness clients at Harness' expense. Nor are there any factual allegations that Harness developed significant business goodwill or client base which Moreno might exploit. The conclusory allegation that Moreno's breach resulted in "significant harm to Harness' goodwill ... and the relationship Harness has with existing and prospective clients" is again insufficient. (Id. 4.) Accordingly, Harness has not sufficiently alleged that it had a legitimate interest worthy of protection by the noncompetition clause.

Nevertheless, even if Harness alleged a legitimate interest, the noncompetition provision is overbroad and the geographic scope is unreasonable on its face as it prohibits Moreno's involvement in virtually any capacity in "any business activity anywhere in the United States that develops, manufactures or markets any products, or performs any services, that are otherwise competitive with or similar to the products or services of the Company (including its subsidiaries (including joint ventures)), or products or services that the Company (including its subsidiaries (including joint ventures)) has under development or that are the subject of active planning at any time during my Service Relationship." (NYSCEF 8, Agreement 8.) Such "broad-sweeping language is unrestrained by any limitations keyed to uniqueness, trade secrets, confidentiality or even competitive unfairness." (Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499 [1977]; Reed, Roberts Assoc., Inc. v Strauman, 40 NY2d 303, 307 [1976] [holding that "a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee" (citation omitted).) Accordingly, "on its face the covenant is too broad to be enforced as written." (Columbia Ribbon & Carbon Mfg. Co., 42 NY2d at 499 [citations omitted].) Thus, the breach of contract claim is dismissed to the extent it is predicated on Moreno's alleged violation of the noncompetition clause.

The court notes that, contrary to Harness' contention, where appropriate, courts can resolve the issue of whether a noncom petition clause is enforceable on motion to dismiss stage.

A noncompetition agreement may be enforced only to the extent necessary to protect an employer's legitimate interests. As this case shows, the noncompetition covenant here failed this standard. It is also important to keep an eye on the ever-changing regulatory landscape governing noncompetition covenants, and in particular, the FTC's most recent rule purporting to ban many of these types of covenants--though this rule has been recently challenged in court. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning the enforceability of a noncompetition agreement.