Former Employer v Former Employee
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Abridged Summary of the Facts
Plaintiff is the owner of a tattoo shop in a small upstate New York town. Plaintiff hired Defendant as an independent contractor to work as a tattoo artist in his shop. The initial agreement between the parties included a covenant not to compete that purported to restrict Defendant from tattooing anyone within a ten-mile radius of Plaintiff’s shop for fifteen years.
Approximately one year after the execution of the second agreement, Defendant ended his association with Plaintiff and opened a tattoo shop within a half -mile of Plaintiff’s business. Plaintiff brought an action to enforce the covenant not to compete and this motion to enjoin Defendant from continued tattoo activities during the pendency of the proceedings.
We represented the Defendant, the Court denied Plaintiff's motion. The argument below comes from our memorandum.
Argument
Temporary injunctive relief is a drastic remedy not routinely granted. In order to obtain a temporary injunction, Plaintiff must show: 1) a likelihood of success on the merits; 2) irreparable injury if temporary relief is not granted, and; 3) favorable balancing of the equities. (see Marietta Corp v Fairhurst, 301 AD2d 734, 736 [3rd Dept 2003].) Plaintiff must also demonstrate that the right to the injunction is plain from undisputed facts. Issues of fact seriously undermine any finding of likelihood of success on the merits. Courts have held that an injunction cannot be granted if it depends on facts to be decided at trial. (see Orkin Exterminating Co Inc v Dayton, 140 AD2d 748, 749 [3rd Dept 1988]); Family Affairs Haircutters Inc v Detling, 110 AD2d 745 [2nd Dept 1985]; County of West Chester v United Water New Rochelle, 32 AD3d 979 [2nd Dept 2006].)
Moreover, the Court of Appeals has made clear that there is a strong public policy against a court sanctioned loss of a person’s livelihood. Accordingly, covenants not to compete are disfavored by the law and subject to close scrutiny. (see Columbia Ribbon & Carbon Mfg Co v A-1-A Corp, 42 NY2d 496, 499 [1977]).
The injunction should not be granted because Plaintiff is not likely to succeed on the merits because plaintiff does not have a legitimate interest and because the covenant is overbroad.
For Plaintiff to prevail, the undisputed facts now before the Court must establish a likelihood that a trial will disclose that the covenant not to compete (“covenant”) (a) was no greater than required to protect an employer’s legitimate interest, (b) that enforcing the covenant would not impose any undue hardship on the employee, and (c) that the covenant is not injurious to the public. A violation of any prong renders the covenant invalid. (BDO Seidman v. Hirshberg , 93 NY2d 382, 388-89, [1999]); Scott, Stackrow & Company, C.P.A.’s, P.C. v Skavina, 9 AD3d 805, 806; 780 NYS.2d 675, 677 [3rd Dept 2004]). Plaintiff’s case fails on all three prongs of the test.
a. Covenant no greater than required to protect an employer’s legitimate interest
(a)(i) Plaintiff has not shown a legitimate interest
To satisfy the first prong of the test, Plaintiff must establish that the covenant protects a legitimate employer interest. A legitimate employer interest may only be based on unfair competition arising from an employee’s use or disclosure of trade secrets, use of a confidential customer list, or where the employee’s services are unique. ( Orkin, supra at 749, citing Leo Silfen Inc v Cream, 29 NY2d 387, 392 [1972].) In Orkin, the Court denied plaintiff’s motion for a temporary injunction because there was no evidence that the defendant’s services were unique, that the employee had appropriated trade secrets or a confidential customer list. (Orkin at 749). Like the plaintiff in Orkin, Plaintiff in this case failed to provide evidence related to a legitimate employer interest. (see Marietta Corp. v. Fairhurst, 301 AD2d at 738 (discussing trade secrets)).
Even though any such facts would be in sharp dispute, Plaintiff has not even alleged the existence of trade secrets, a confidential customer lists, or that Defendant was a unique and valuable employee. Indeed, Plaintiff has alleged information contrary to the finding of an employer interest based on a unique and valuable employee. Plaintiff alleged that “[t]he performance of defendant was acceptable, however he required frequent reminders regarding hygiene.” (Complaint ¶6). The phrasing suggests that Defendant’s performance was less than acceptable, and any interpretation of the allegation would fall short of the high standard required to support a legitimate employer interest.
Plaintiff alleged that Defendant used his “acquired tattoo skills” elsewhere. (Plaintiff's Complaint ¶10). Understandably, Defendant may have acquired additional skills by independently practicing his trade during his association with Plaintiff. However, Plaintiff has not shown that he was responsible for any of that skill and that the skills imparted were akin to trade secret owned by Plaintiff. However, even if Plaintiff trained Defendant, Plaintiff would not be able to enjoin the use of those skills as a result of that instruction. “To use…acquired skill elsewhere is no legal wrong.” (Clark Paper and Mfg Co v Stenacher, 236 NY 312, 319-20 [1923].) While an employer may prevent a former employee from using secret information of great value to the employer to his own benefit, that same doctrine does not allow an employer to prevent an employee from using skill and knowledge learned in the course of employment, even if that skill came by means of directions or instructions from the employer. (Clark Paper at 319-20).
In Clark Paper, the Court of Appeals recognized the value of a skilled employee and that the employer had trained the employee. But because the employee did not obtain a trade secret or valuable information from the employer, the Clark Paper Court held that an eight year covenant, as applied to a skilled salesman, was so unreasonable that it was void as a restraint on trade and personal liberty. The rule of Clark Paper applies to this case with even greater force. In this case, Plaintiff seeks to restrain a less than skilled tattoo artist for a period of fifteen years without any showing that Plaintiff imparted any knowledge to Defendant.
Plaintiff’s complaint seems to suggest the use of a customer list in the form of an appointment book. Plaintiff alleged that customers informed him that Defendant had contacted them and that most people scheduled in “Defendant’s Appointment Book” did not show up for their appointments. (Complaint ¶¶11, 12). For an employer to have a legitimate interest in a customer list it must be confidential and cultivated through effort and expense attributable to the employer. Therefore, Plaintiff can have no legitimate interest to protect in appointments scheduled and maintained by Defendant. Plaintiff has not alleged ownership of the customer list and such a finding seems unlikely given the independent contractor agreement that promised no such employer marketing effort and sought maximum separation between the affairs of Plaintiff and Defendant. Moreover, Plaintiff has not mentioned confidentiality and lists of customers for a tattoo shop could be compiled by direct observation of the shop or with a phone book or other such mundane method. (see Orkin, 140 AD2d at 749-50.)
(a)(ii) No greater than necessary-Covenant is overbroad and unreasonable
If Plaintiff can establish a legitimate interest, the covenant, as written, must protect only that legitimate interest. A covenant with broad sweeping language unrestrained by limitations keyed to uniqueness, trade secrets, confidentiality, or competitive fairness boldly restrains competition and is too broad to be enforceable. (Columbia Ribbon, 42 NY2d at 499-500; Family Affairs Haircutters, 110 AD2d at 748.)
The entire covenant in Plaintiff’s document marked Exhibit B is quoted below:
If I terminate my affiliation, or my affiliation is terminated with Employer for any reason, I will not practice my trade within a ten (10) mile radius of Employer for a period of fifteen (15) years.
Because Plaintiff has neither produced nor alleged any evidence related to the protectable interests of trade secrets or unique employee, the only potentially legitimate employer interest would have to relate to goodwill or client lists. Covenants intended to protect a confidential customer list are rejected as overbroad if they apply to clients that an employee secured outside the scope of employment or to clients that the employee recruited through his own independent efforts. (BDO Seidman at 392-393; Scott, Stackrow & Company, 9 AD3d at 806.)
The covenant in this case does not discriminate as to the extent of the prohibition on competition. If enforced, the covenant would prevent Defendant from tattooing or piercing all people. The covenant would apply to residents of other areas that may travel to Defendant for a tattoo. It would apply to Defendant’s friends and associates that have no connection with Plaintiff and to all other potential clients, without regard to who expended effort to recruit them.
Plaintiff will likely argue that the Court should sever and reform the overbroad covenant to comply with the law. However, Plaintiff does not deserve the equitable relief of reformation. In Karpinski v. Ingrasci, the Court held that a covenant, as written, was too broad to be enforceable. (28 NY2d 45 [1971]). The Court, however, reformed the clause after balancing the equities. This case is distinguishable from Karpinski. The Karpinski Court found a legitimate employer interest because defendant in that case was a young oral surgeon who benefited greatly from a close relationship with the former employer and because all of defendant’s practice was and would be attributable to the former employer. Defendant in this case is not a physician or part of any learned profession --a fact critical to the Karpinski holding--but a rather ordinary, and accordingly to Plaintiff, sub-par tattoo artist. (see also Columbia Ribbon, 42 NY2d at 500 (denying severance without showing of disclosure of trade secret)).
The Third Department in Scott held that the severance and partial enforcement doctrine may be available where an employer demonstrated, in addition to a legitimate interest, the absence of overreaching, coercive use of bargaining power or other anti-competitive conduct. (Scott, Stackrow & Company, 9 AD3d at 807.) Factors weighing against partial enforcement are the imposition of the covenant with respect to hiring or continued employment as opposed to its use in connection with a promotion to position of trust, the existence of coercion, a general plan to forestall competition and the employer’s knowledge the covenant was over broad. Id. In this case, Plaintiff required defendant to agree to the covenant as an initial condition of employment and as condition of continued employment.