Reed, Roberts Associates, Inc. v. Strauman
| Decision Date | 13 July 1976 |
| Parties | , 353 N.E.2d 590 REED, ROBERTS ASSOCIATES, INC., Appellant-Respondent, v. John J. STRAUMAN et al., Respondents-Appellants. |
| Court | New York Court of Appeals Court of Appeals |
Abraham Kaplan, Garden City, for appellant-respondent.
John J. Palmeri, New York City, for respondents-appellants.
These cross appeals involve the efficacy of an employment contract provision barring an employee from either directly or indirectly competing with, or soliciting clients of his former employer. This restrictive covenant is not a proper subject for specific enforcement since the services of the employee were not unique or extraordinary and the employer failed to establish a studied copying of a customer list.
Reed, Roberts Associates, Inc., with over 6,000 customers being served through some 21 offices scattered throughout the Nation and with gross sales of almost $4 million, is one of the top three companies in its field. The lion's share of its business involves supplying advice and guidance to employers with respect to their obligations under State unemployment laws. The object of this service is to minimize the tax liability and administrative expenses involved in complying with these laws. Other services performed by Reed, Roberts include consultation regarding workmen's compensation, disability benefits and pension plans. This action was commenced by Reed, Roberts to prevent a former employee from competing against them and soliciting their customers.
When John Strauman was hired by Reed, Roberts 1 in November, 1962 he signed a restrictive covenant which read in pertinent part: 'I do therefore consent that at no time shall I either directly or indirectly solicit any of your clients, and I do further agree that for a period of three years from the date of termination of my employment that I will not either directly or indirectly be engaged in, nor in any manner whatsoever become interested directly or indirectly, either as employee, owner, partner, agent, stockholder, director or officer of a corporation or otherwise, in any business of the type and character engaged in by your company within the geographical limits of the City of New York and the counties of Nassau, Soffolk and Westchester.'
Strauman's first position as an employee of Reed, Roberts was technical man-auditor. Since he had four years' experience in the field by virtue of having previously worked for a major competitor, Strauman became a valuable employee and over the next 10 years received three important promotions rising to senior vice-president in charge of operations. Throughout his tenure with Reed, Roberts, Strauman was instrumental in devising most of the forms utilized by the company in rendering its service and in setting up its computer system. On becoming vice-president he was given increased responsibility with regard to internal affairs including the formulation of company policy. Importantly, however, he was not responsible for sales or obtaining new customers. The record indicates that while the business forms used by Reed, Robrets were unique to that service industry, they were not much different from those used by other companies. 2
After 11 years with Reed, Roberts, Strauman decided to strike off on his own and formed a company called Curator Associates, Ins. This company was in direct competition with his former employer and was even located in the same municipality. Although Reed, Roberts alleges that Curator has been soliciting its customers, Curator sustained losses of some $38,000 with gross sales of only $1,100 during its first year of operations. Nevertheless, fearful of competition from the former employee, Reed, Roberts commenced this action seeking to enforce the posttermination covenant not to compete signed by Strauman in 1962. Specifically Reed, Roberts seeks to enjoin Strauman and Curator from engaging in the business of unemployment tax control within the metropolitan area for a period of three years and to enjoin them from soliciting any of Reed, Roberts' customers permanently.
The trial court granted this relief in part. The court refused to prohibit defendants from engaging in a competitive enterprise finding that there were no trade secrets involved here and that although Strauman was a key employee his services were not so unique or extraordinary as to warrant restraining his attempt to compete with his former employer. Nevertheless the court believed that it would be unjust and unfair for Strauman to utilize his knowledge of Reed, Roberts' internal operations to solicit its clients and permanently enjoined defendants from doing so. The Appellate Division affirmed, without opinion. We believe the order of the Appellate Division should be modified to the extent of reversing so much thereof as grants a permanent injunction against the defendants.
Generally negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirement of reasonableness. Yet the formulation of reasonableness may vary with the context and type of restriction imposed. For example, where a business is sold, anticompetition covenants will be enforceable, if reasonable in time, scope and extent. These covenants are designed to protect the goodwill integral to the business from usurpation by the former owner while at the same time allowing an owner to profit from the goodwill which he may have spent years creating. (See, e.g., Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 271, 246 N.Y.S.2d 600, 602, 196 N.E.2d 245, 247 and authorities cited there; see, also, Mandel, Preparation of Commercial Agreements (1970 ed.), pp. 52--54.) However, where an anticompetition covenant given by an employee to his employer is involved...
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