CONTRACTS - RESTRICTIVE
COVENANT - REIMBURSEMENT CLAUSE - PARTIAL ENFORCEMENT - REASONABLENESS - LEGITIMATE
BUSINESS INTEREST - UNIQUE OR EXTRAORDINARY SERVICES
clause" in an agreement between an employer and a former manager can be partially
enforced to the extent necessary to protect the employer's legitimate business
[SUMMARY] | [ISSUE
& DISPOSITION] | [AUTHORITIES CITED] | [COMMENTARY]
BDO, a national accounting firm, brought suit against Defendant, a former manager,
whose "Manager's Agreement" acknowledged a fiduciary relationship between himself
and the firm. Defendant agreed that if he served any of Plaintiff's former clients
within eighteen months of his termination with the firm, he would compensate
Plaintiff at a rate of one and a half times the amount Plaintiff had charged
that client over the prior fiscal year.
Defendant subsequently resigned from the firm and this suit was initiated.
During discovery, Plaintiff submitted a list of 100 former clients who had allegedly
been lost to Defendant. Defendant denied having served some of the clients,
averred that a substantial number of them were personal clients he had brought
to the firm, and claimed that some were clients for whom he had not been the
primary BDO representative on the account.
The New York Supreme Court granted summary judgment for the Defendant, finding
that the reimbursement clause was an over-broad and unenforceable anti-competitive
agreement. The Appellate Division agreed, and refused to enforce the covenant,
holding that the entire agreement was invalid.
ISSUE & DISPOSITION
Whether a "reimbursement clause" in an agreement
between Plaintiff, a general partnership of certified public accountants, and
Defendant, a former manager, which requires Defendant to compensate Plaintiff
for serving any client of Defendant's regional office within eighteen months of
his termination, must be invalidated as an unenforceable restrictive covenant.
No. The Court of Appeals held that the reimbursement
clause could be partially enforced to the extent necessary to protect Plaintiff's
legitimate business interest.
Cases Cited by the Court
- Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 N.Y.2d
496 (N.Y. 1977).
- Gelder Med.Group v. Webber, 41 N.Y.2d 680 (N.Y. 1977).
- Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41
N.Y.2d 420 (N.Y. 1977).
- Reed, Roberts Assocs. Inc. v. Strauman, 40 N.Y.2d 303 (N.Y.
- In re Freemançs Estate, 34 N.Y.2d 1 (N.Y. 1974).
- City of Rye v. Public Serv. Mut. Ins. Co., 34 N.Y.2d 470
- Karpinski v. Ingrasci, 28 N.Y.2d 45 (N.Y. 1971).
- BDO Seidman v. Hirshberg, 247 A.D.2d 923 (N.Y. App. Div.
- Singer v. Habif, Arogeti & Wynne, 297 S.E.2d 473 (Ga.,
- Holloway v. Faw, Casson & Co., 572 A.2d 510 (Md., 1990).
- Philip G. Johnson & Co. v. Salmen, 317 N.W.2d 900 (Neb.,
- Technical Aid Corp. v. Allen, 591 A.2d 262 (N.H., 1991).
- Smith Batchelder & Rugg v. Foster, 406 A.2d 1310 (N.H.,
Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381 (Tex.,
Other Sources Cited by the Court
- N.Y. Educ.
- N.Y. Educ.
Educ. Law §6509-6511.
- N.Y. Comp. Codes R. & Regs. tit. 8, § 70.1.
- N.Y. Comp. Codes R. & Regs. tit. 8, § 70.3.
- N.Y. Comp. Codes R. & Regs. tit. 8, § 70.6.
- Restatement (Second) of Contracts §184 (1979).
- Restatement (Second) of Contracts § 188 (1979).
- Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625,
- American Institute of Certified Public Accountants Code of Professional
Conduct §53, art II.
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