The District Court for the Southern District of New York recently demonstrated the importance of including nonsolicitation language in employment agreements, in addition to noncompetition language, where employers seek to protect their customer base from departing employees. In Silipos, the court, despite finding that the noncompetition covenant in the subject agreement was not enforceable, nevertheless found that the nonsolicitation covenant was enforceable and that the defendant would be bound by the restriction – effectively preventing defendant from competing with plaintiff for its customers.
In the action, the court found that the defendant, a former executive vice president of plaintiff, had entered into a valid employment agreement containing: (1) a post-employment, worldwide, one-year noncompetition covenant prohibiting defendant from having employment with anyone direct or indirect competitor in plaintiff’s industry; and (2) a post-employment, worldwide, one-year nonsolicitation covenant prohibiting defendant from soliciting any of plaintiff’s current or prospective customers, distributors, suppliers and/or vendors.
The court, applying New York law, repeated the well-established precept that noncompetition and nonsolicitation covenants are enforceable only to the extent necessary to protect Silipos’s "legitimate interests." In the action, plaintiff asserted that both covenants were necessary to protect three legitimate interests: (1) protection of its trade secrets; (2) protection of its confidential customer information; and (3) protection of its client base. Plaintiff further alleged that defendant, due to his position within the company and his responsibilities, had access to various types of information during his employment, including business strategy information and pricing information, which constituted trade secrets and/or confidential customer information.
The court, however, found that plaintiff only had one demonstrable "legitimate interest," to wit, protecting its client base. In particular, the court concluded that none of the business information to which defendant had access rose to the level of trade secrets or confidential customer information, and as such, plaintiff lacked a "legitimate interest" to warrant enforcement of the noncompetition covenant.
In contrast to the noncompetition covenant, however, the court found that the worldwide nonsolicitation covenant was enforceable because the protection of a client base was a "legitimate interest" of plaintiff. Consistent with this "legitimate interest," the court enforced the nonsolicitation covenant with respect to: (1) customers that defendant brought to Silipos; (2) customers for whom defendant was the primary contact; and (3) customers with whom defendant had a substantial degree of long-term involvement. The court moreover found that the restriction was not unreasonably broad, holding that "in light of [Silipos’s industry’s] intimate yet geographically diffuse nature, Silipos’s legitimate interests in protecting its customer base extend worldwide."