Category Archives: non-compete

May a non-competition agreement be enforced under New York law?

The United States District Court for the Southern District of New York was recently asked to enforce a non-competition agreement between International Business Machines, Corp. (“IBM”) and its former employee, Giovani Visentin (“Visentin”).  Int’l Business Machines Corp. v. Visentin, No. 11-399, 2011 WL 672025 (S.D.N.Y. 2011).

On January 19, 2011 Visentin resigned from IBM and accepted a position with competitor Hewlett-Packard Company (“HP”).  On January 20th, IBM sued Visentin for breach of contract and misappropriation of trade secrets.  IBM also sought a temporary restraining order preventing Visentin from starting employment with HP.  The court issued a temporary restraining order that prevented Visentin from working for HP until a full hearing was held on February 1, 2011.

Visentin worked for IBM as a business manager for 26 years.  He had no technical training and was not involved in the design or implementation of technology-based solutions for IBM.  In other words, Visentin had business expertise, but no technical expertise and the positions he held with IBM were consistent with that business expertise.

Visentin was required to sign two non-competition agreements for IBM: the first in July 2008 and the second in July 2009.  The 2009 agreement stated, “during [Mr. Visentin’s] employment with IBM and for twelve (12) months following the termination of [his] employment . . . [Mr. Visentin] will not directly or indirectly within the ‘Restricted Area’ (i) ‘Engage in or Associate with’ (a) any ‘Business Enterprise’ or (b) any competitor of the Company.”  Id. at *3.  The 2009 agreement also prohibited Visentin from soliciting IBM customers for twelve (12) months after the termination of his employment.

At the hearing, HP representatives testified that Visentin was hired for his business knowledge and not for any technical knowledge he may have acquired while working for IBM.  HP’s representatives also testified that Visentin’s position with HP would be structured so that it would be different from his prior position with IBM in terms of subject area, geographic scope and level of responsibility.  HP purposely implemented these restrictions so Visentin could avoid violating the non-competition agreement.

Under the law of New York, IBM had to show irreparable harm to obtain a temporary restraining order preventing Visentin from working at HP.  The irreparable harm claimed by IBM was Visentin’s inevitable disclosure to HP of IBM’s confidential information.  New York law also recognizes trade secrets and confidential information as legitimate interests to be protected by employers; however, only trade secrets and confidential information the employee misappropriates or will inevitably disclose may be protected.

In rejecting IBM’s arguments, the court held that Visentin was a “general manager” at IBM charged with the task of running efficient teams.  While he may have come into contact with some trade secrets while doing this, those secrets were not the focus of his job.  HP’s witnesses testified that Visentin was hired to “manage people” at HP and that HP was not interested in someone with technical proficiency for Visentin’s position.

The court rejected IBM’s claims.  The court accepted Visentin’s testimony that he did not come into contact with trade secrets in any of those areas.  As a result, the court held that IBM could not establish that the information it sought to protect constituted “trade secrets.”

The court also considered whether Visentin misappropriated confidential information or whether his position with HP would cause inevitable disclosure of  IBM’s confidential information.  Visentin’s testimony revealed that he did not retain any IBM documents after resigning and that his laptop was retrieved by IBM within hours of his resignation.  In fact, the court concluded that IBM presented no evidence at all that Visentin misappropriated confidential information or trade secrets.  While all parties agreed that IBM and HP are competitors and that the nature of the industry involves confidential information and trade secrets, there was no evidence that Visentin’s position with HP was “nearly identical” to his position with IBM.  There was also no evidence that the nature of Visentin’s position with HP meant he would inevitably disclose IBM’s confidential information.  The court based its conclusions on Visentin’s acknowledgment that he was bound by law not to disclose IBM’s confidential information and on the fact that there was no evidence of prior wrongdoing or disclosure of confidential information by Visentin.

In reaching its decision, the court applied New York’s common law “reasonableness standard” which states that a non-competition agreement is enforceable only when it:

1) is no greater than is required for the protection of the legitimate interest of the employer; 2) does not impose undue hardship on the employee, and 3) is not injurious to the public.

Applying this reasonableness standard, the court determined that the first factor weighed in favor of Visentin.  IBM’s non-competition agreement was overbroad because it prohibited competition in areas where IBM had no legitimate business interest.  The court held that the second factor also weighed in favor of Visentin.  The agreement imposed an undue hardship on future employment prospects for Visentin as there was no guarantee the job at HP would still be available after the period of the non-competition agreement (12 months).  Finally, the Court determined that the third factor – injury to the public – did not weigh in favor of either party.  As a result, the court held that IBM was unable to establish that the non-competition agreement was enforceable under New York law.

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