Updated: June 30, 2020
Restrictive covenants limiting post-employment competition, commonly referred as “non-compete clauses”, have been a widely discussed topic in the legal field for many years. Non-compete clauses have been extensively contested over their arguable unreasonableness in duration, scope, and geography. Now, though, New York has added a new wrinkle to the mix.
In Integra Optics, Inc. v. Messina, the New York Supreme Court stated that an employer’s threat to withhold $100,000 in earned commission constituted economic duress and, thus, could render an otherwise valid non-compete agreement unenforceable.
In Integra Optics, the employee, who worked as a sales representative and was the primary point of contact between the company and its clients, initially refused to sign the restrictive covenant. To accommodate his requests, his employer renegotiated certain aspects of the non-compete agreement. Ultimately, the signed final version included a one-year restriction from working in a similar position for a narrow list of competitors in New York state.
However, the employee raised an unclean hands defense and argued that his employer’s threats to withhold earned compensation were the only reasons why he felt compelled to sign the agreement. After carefully reviewing evidence from both sides, the Court recognized that apparent threats to withhold commissions are likely to invalidate a facially enforceable non-compete agreement on the grounds of economic duress.
This case provides a very important lesson for employers who are seeking to protect themselves with these types of restrictive covenants against post-employment competition. Although employers generally have leverage in negotiating non-compete agreements, they still need to provide a non-coercive environment where their employees are free to enter into these agreements.
In addition, employers should suggest their employees to seek independent legal counsel before signing any sort of restrictive covenants against post-employment competition. In fact, having a lawyer assisting in the transaction will further assure that their employees were fully informed about the legal consequences and freely entered into the agreement.