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Maltby v. Harlow Meyer Savage, Inc.

New York Supreme Court
166 Misc. 2d 481, 633 N.Y.S.2d 926, 1995 N.Y. Misc. LEXIS 514 (1995)
ELI5:

Rule of Law:

A restrictive covenant not to compete is enforceable through a preliminary injunction if it is reasonable in duration and scope, the employee's services are unique or extraordinary, and the employer continues to pay the employee's salary during the restriction period.


Facts:

  • Plaintiffs were employed by Harlow Meyer Savage, Inc. (HMS) as brokers on its 'forward dollar/mark' trading desk.
  • Each plaintiff signed a renewable employment agreement containing a non-compete clause.
  • The clause prohibited them from working for a competitor for six months after termination within specified metropolitan areas.
  • The agreement stipulated that HMS would continue to pay the employees' base salaries during this six-month restriction period.
  • Plaintiffs were given the opportunity to consult with legal counsel before signing the agreements, and most or all did so.
  • On August 8, 1995, the plaintiffs resigned from HMS en masse.
  • Immediately following their resignation, the plaintiffs began working for Cantor Fitzgerald, a direct competitor of HMS.

Procedural Posture:

  • Plaintiffs initiated a declaratory judgment action in the trial court, seeking a declaration that the restrictive covenants in their employment agreements were unenforceable.
  • Defendant Harlow Meyer Savage, Inc. (HMS) moved for a preliminary injunction to prevent the plaintiffs from working for a competitor.
  • The trial court (Gammerman, J.) issued a temporary restraining order (TRO) against the plaintiffs and their new employer, Cantor Fitzgerald, conditioned on HMS continuing to pay plaintiffs' salaries.
  • Plaintiffs applied to the Appellate Division, First Department, to vacate the TRO.
  • The Appellate Division ordered the trial court to either promptly hold a hearing on the preliminary injunction motion or vacate the TRO against the individual plaintiffs.
  • The trial court (Cahn, J.) then held a hearing to decide on HMS's motion for a preliminary injunction.

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Issue:

Is a six-month non-compete clause in an employment agreement enforceable via a preliminary injunction when the employee is paid their base salary during the restricted period and their services are deemed unique due to their client relationships?


Opinions:

Majority - Herman Cahn, J.

Yes, the non-compete clause is enforceable. A restrictive covenant is reasonable and warrants a preliminary injunction when it protects the employer from severe economic injury while also protecting the employee's livelihood. Here, the plaintiffs' services are considered unique due to the client relationships they developed at HMS's expense. The six-month duration is reasonable as it reflects the time needed for new employees to build similar client relationships. Crucially, the provision requiring HMS to pay the plaintiffs' base salaries during the non-compete period balances the equities, ensuring the employees are not deprived of their ability to earn a living. Therefore, HMS demonstrated a likelihood of success on the merits, irreparable harm, and a balance of the equities in its favor, satisfying the three-part test for a preliminary injunction.



Analysis:

This decision illustrates a key exception to the general judicial disfavor of non-compete agreements in New York. The court establishes that enforceability is significantly enhanced when two conditions are met: the employee's services are 'unique' (defined here as valuable client relationships developed at the employer's expense) and the employer mitigates the employee's hardship by continuing salary payments. This provides a clear model for employers seeking to create enforceable restrictive covenants for key personnel. It signals that courts are more willing to enforce such agreements when they appear to be a bargained-for exchange with mutual obligations, rather than a one-sided restraint on an employee's mobility.

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