Employers often condition the payment of post-employment or deferred compensation on a departing employee’s compliance with a noncompete agreement. New York is one of the few states that specifically allow for such an arrangement under the “employee choice” doctrine. This doctrine holds that an employee who chooses to voluntarily resign and violate his or her noncompetition obligations can be deemed to have waived any legal right to post-employment compensation, but does not require the agreement to pass the test of “reasonability” to which noncompete agreements in New York are generally subject. The employee choice doctrine is based on the premise that a resigning employee is given the choice of either preserving his or her right to compensation by refraining from engaging in competitive employment, or forfeiting that right by choosing to compete with a former employer.
A New York court has recently declined to allow the employee choice doctrine to apply to applications for equitable relief. In Richard Manno & Co., Inc. v. Manno, 2012 WL 488252 (N.Y.Sup., Suffolk Co. Feb. 6, 2012), respondent, Anthony Manno, was employed by the petitioner, a company which manufactures and sells steel fasteners and machined parts in the United States. In October of 2010, the petitioner and respondent entered into a severance agreement, which, in part, provided for future lump sum payments as well as monthly and other periodic payments for designated terms. The payments were conditioned upon certain post employment obligations by Mr. Manno, a violation of which would contractually result in the forfeiture of future payments.
The petitioner claimed that in or about January of 2011, respondent violated the severance agreement by forming a competing company and sought injunctive relief in aid of arbitration for monetary damages. The New York court denied the application assuming, without so finding that the subject severance agreement contains a non-compete restrictive covenant, it “would not be enforceable without regard to the standards of reasonableness which covenants not to compete are regularly measured.” The court also noted that the “[a]pplication of the reasonableness standard is consistent with [a prior Court of Appeals decision that noted] that the ‘employee choice doctrine’ exception is applicable only in cases involving economic relief and not to those for injunctive relief.”