By Marjorie Johnson, J.D.
Further, because New York courts allow certain nonsolicitation agreements limiting a former employee’s ability to solicit customers she serviced or contacted on behalf of the former employer, the purported agreement was not unreasonable as a matter of law.
Reviving an insurance company’s breach of contract claim seeking to enforce a 2008 nonsolicitation agreement against a former regional account manager, the Eighth Circuit found the district court erred in determining that the purported agreement was nullified because it lacked mutuality of obligation once the company terminated the employee for refusing to sign a new nonsolicitation agreement presented to her in 2017 following an acquisition. Reversing summary judgment in favor of the employee, the Eighth Circuit held that triable issues existed as to whether she signed the original agreement. Assuming she did, her nine years of subsequent continued employment was sufficient consideration to bind her to the original contract even though she was terminated for refusing to sign the revised one. Moreover, the agreement was not unreasonable as a matter of law (Travelex Insurance Services, Inc. v. Barty, August 17, 2020, Colloton, S.).
Nonsolicitation agreement. In 2008, the insurance company hired the employee as a regional account manager in New York. As a condition of employment, its parent company required employees to sign a nonsolicitation agreement that prohibited them from “directly or indirectly providing or soliciting to provide products or services” in competition with the company to certain customers for one year after termination of employment. The agreement—which the employee denied having ever signed—applied to any “existing customer or prospective customer” with whom the employee “had personal contact and provided (or participated in a proposal to provide) products or services during the two-year period prior to termination of employment.”
Fired after refusing to sign new agreement. After the employer was acquired in 2016, it required all employees to sign a revised nonsolicitation agreement as a condition of continued employment. Because the employee declined to sign the new agreement, she was terminated. She then began to work for a competitor and engaged in conduct that purportedly violated the 2008 agreement.
Lawsuit. The employer filed the instant action asserting breach of contract, which was dismissed on summary judgment. The district court held that regardless of whether the employee signed the 2008 agreement, it was nullified because it lacked mutuality of obligation once the employer terminated her in 2017 for refusing to sign the new agreement.
Triable issue as to signature. Reviving the employer’s breach of contract claim, the Eighth Circuit first found that a triable issue existed as to whether the employee signed the 2008 nonsolicitation agreement. Though she denied doing so and the employer failed to produce a signed copy, it produced an unsigned copy of the standard agreement which bore her name. Additionally, its VP of HR testified that she remembered seeing the employee’s signature on a copy of the agreement that she faxed to the employee, which was corroborated by an email from the employee asking for a copy of it and the contemporaneous fax cover sheet with the subject line “Signed NS.”
Pre-acquisition agreement not nullified. The appeals court then disagreed with the district court’s determination that the acquisition and demand that the employee sign a new agreement in 2016 nullified the 2008 agreement if it existed. First, because the parties did not reach a new agreement in 2016, there was no new contract that could have superseded a former agreement. The employer’s firing of the employee when she declined to sign a new nonsolicitation agreement did not eliminate the “mutuality of obligation” on which the 2008 agreement rested.
Continued employment as consideration. Under the purported 2008 agreement, her promise not to solicit competitors was exchanged for employment by the company. Under New York law, continued employment for a “substantial period” of time is sufficient consideration to support a noncompete agreement. The company employed the employee for nine years after she allegedly entered into the 2008 agreement, so there was sufficient consideration to bind her to her obligation under the 2008 contract even though she was terminated in 2017.
Dismissal without cause not determinative. The appeals court also rejected the employee’s alternative argument that summary judgment was warranted because New York law does not allow enforcement of restrictive covenants on employment when an employee is dismissed without cause. Even if she was terminated without cause—which the employer disputed—the case upon which she relied did not establish a per se rule against enforcement of nonsolicitation agreements under such circumstances. Unlike that case, the issue was not whether the employer could deprive her of previously earned post-employment benefits. Rather, it was whether it could enforce an agreement forbidding solicitation of customers for one year after her termination in exchange for nine years of pre-termination employment.
Reasonableness. Assuming that she was terminated without cause, the determinative issue would be whether the nonsolicitation agreement was reasonable. The general rule in New York is that “noncompete clauses in employment contracts are not favored,” but they will be enforced “to the extent reasonable and necessary to protect valid business interests.” New York courts have recognized that agreements limiting a former employee’s ability to solicit customers that she serviced or contacted on behalf of the former employer are reasonable methods for an employer to protect its goodwill. Therefore, the purported 2008 nonsolicitation agreement was not unreasonable as a matter of law.
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