Quandt's Wholesale Distributors, Inc. v. Giardino
1982 N.Y. App. Div. LEXIS 16023, 448 N.Y.S.2d 809, 87 A.D.2d 684 (1982)
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Rule of Law:
A restrictive covenant in an employment contract is enforceable only if it is reasonably limited in time and geography and necessary to protect the employer from unfair competition stemming from the employee's use of trade secrets or confidential customer lists, or if the employee's services are truly unique and extraordinary. An employee being highly effective or well-trained does not meet the standard of providing unique or extraordinary services.
Facts:
- In January 1981, Crispin Company, Inc. hired John Giardino as a salesman.
- Giardino's employment contract contained a restrictive covenant preventing him from competing with Crispin in his assigned three-county area for six months following termination.
- His compensation was a base salary plus a 1% commission on gross sales.
- In August 1981, Crispin unilaterally changed Giardino's compensation to a straight commission basis.
- In September 1981, Giardino resigned from Crispin.
- Nine days after resigning, Giardino began working for S. S. Pierce Company, a competitor of Crispin.
Procedural Posture:
- Crispin Company, Inc. (plaintiff) filed an action in the New York Supreme Court, Special Term (trial court) to enforce a restrictive covenant against John Giardino and S. S. Pierce Company (defendants).
- Plaintiff moved for a preliminary injunction to prevent Giardino from competing.
- The trial court granted the plaintiff's motion for a preliminary injunction.
- Defendants (as appellants) appealed the trial court's order to the New York Supreme Court, Appellate Division (an intermediate appellate court).
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Issue:
Is a restrictive covenant in an employment contract enforceable when the employer fails to show that the employee's services were unique or that the employee used trade secrets or confidential customer lists to compete unfairly?
Opinions:
Majority - per curiam
No. A restrictive covenant is not enforceable under these circumstances. Such covenants are disfavored by law and will only be enforced if they are reasonably limited and necessary to protect the employer from unfair competition. Unfair competition arises from the use of trade secrets, confidential customer lists, or when an employee’s services are 'special, unique or extraordinary'. Here, Crispin alleged no trade secrets, and its customer names were readily available from public directories, thus not confidential. Giardino was merely a 'very effective and well-trained salesman,' which is of 'high value' but does not rise to the level of unique or extraordinary services required for enforcement. Furthermore, Crispin failed to demonstrate the irreparable injury necessary for a preliminary injunction, as its president admitted sales on Giardino's former route were equal to or greater than before he left.
Analysis:
This decision reinforces New York's strong public policy disfavoring restrictive covenants that limit an individual's ability to earn a livelihood. It clarifies the high evidentiary bar an employer must clear, emphasizing that an employee's high value or effectiveness is not, by itself, a protectable interest. The ruling solidifies the distinction between a merely skilled employee and one whose services are truly 'unique or extraordinary,' thereby narrowing the circumstances under which non-compete agreements can be enforced against former employees.
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