Yes, because it can affect a court’s analysis as to the balance of equities between protecting an employer’s legitimate business interests and a former employee’s right (and need) to earn a living. The case I discuss here found that enforcing a non-compete (leading the former employees to be unemployed) would “be greater than necessary” to protect the employers legitimate business interest; mainly because the agreement also contained a non-solicit agreement, which the Court did enforce. An international pandemic that has left millions unemployed, and shuttered businesses, is inextricably intertwined with enforcement of non-competition agreements, non-solicitation agreements and other employee restrictive covenants because of the impact on the economy.
There were a few cases over the summer that I wrote about here. But now, this is the clearest case I have seen where a court clearly references the pandemic as a reason to not strictly enforce a non-competition agreement.
The case came out of the Northern District of New York, a federal court in Albany. A staffing company suffered a series of employee departures. The company had terminated a few. Another was furloughed. Others resigned voluntarily. The case was under New York non compete law law, where if you are fired for no good reason, you can probably get out of your non-compete. Even if you are constructively discharged you might get out of your non-compete. If you resign, however, a non-compete is typically enforced. But the case can impact Connecticut, Massachusetts and New Jersey cases because the analysis under almost every state is very similar.
What’s really neat about this case is that the federal Judge, Mae. A. D’Agostino, took the time and consideration to recognize that COVID has battered the economy and employment numbers. She exercised her discretion and rendered a fair decision. You see these employees had employment agreements with non-competition language and non-solicitation language. The former means you cannot work in a specific type of business at all for a period, in a certain area. The latter, allows you to work there, but you cannot solicit your former employer’s customers.
Restrictive covenants always impact a former employees right to earn a living. But here we see an analysis that considers current events in deciding whether to enforce it a non-compete.
It will be interesting to see if any courts extend this reasoning to, for example, a Wall Street crash like we had in 2008, in deciding whether to enforce restrictive covenants in financial advisor employment agreements.
If you have a questions, call the Law Junkies. We eat this stuff up!
