Court of Appeals Deems Employment Contract’s Choice of Law Provision as to Non-Solicitation against Public Policy

By James Brodie, Esq.

Labor law is a constantly evolving field of law presenting new challenges and questions for both employees and employers alike.  Recently, the Court of Appeals determined that the application of Florida law on restrictive covenants related to the non-solicitation of customers by a former employee would violate the public policy of New York State.

 In Brown & Brown, Inc. v. Johnson, plaintiff Brown & Brown, Inc. (hereinafter “BBI”) was a Florida corporation and parent company to Brown & Brown of New York, Inc., (hereinafter “BBNY”) an insurance intermediary licensed in New York.  25 N.Y.3d 364 (2015).  BBNY recruited the defendant Theresa A. Johnson to leave her former job at Blue Cross/Blue Shield where she had worked as an underwriter and actuary for over 20 years.  On Johnson’s first day, she was given an employment agreement containing a non-solicitation agreement and a Florida choice-of-law provision.

 Specifically, the agreement precluded Johnson from directly or indirectly soliciting, accepting, or servicing any person or entity “that is a customer or account of the New York offices of [BBI and BBNY] during the term of [the] Agreement” for a period of two years following her termination of employment.  It also stated that any disputes would be governed by Florida law.  The agreement was never mentioned to the defendant prior to her first day and the parties disputed the circumstances surrounding its execution.

 After working several years in New York exclusively, the defendant was terminated.  Within a month, she was hired by one of the plaintiffs’ competitors to provide services to some of BBNY’s former customers.  The plaintiffs filed suit shortly thereafter to stop alleged violations of the non-solicitation provision and for damages.

 At trial, the defendant’s motion for summary judgment was partially granted.  However, the court refused to dismiss the portion of the breach of contract cause of action against the defendant alleging that she violated the non-solicitation agreement by using client relationships that she had initially developed while working for the plaintiffs.  On appeal, the Fourth Department dismissed the breach of contract cause of action, holding that the Florida choice-of-law provision was against public policy and that the non-solicitation provision was overbroad and unenforceable.

 Within New York, the party seeking a declaration that an exception based upon the alleged violation of public policy bears the heavy burden of proving that the chosen law of another state would be offensive to the fundamental public policy of the state.  In determining whether Florida’s law regarding non-solicitation agreements violated New York law, the Court of Appeals compared the relevant statutes of both states (New York and Florida).

 “The law of the two states is similar to the extent that they both require restrictive covenants to be reasonably limited in time, scope and geographical area, and to be grounded in a legitimate business purpose.”  Brown & Brown, Inc. v Johnson, 25 N.Y.3d 364, 369 [2015].  However, “Florida law requires a party seeking to enforce a restrictive covenant only to make a prima facie showing that the restraint is necessary to protect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary.”  Id.  Where the plaintiff is able to make such showing, the court is required to “modify the restraint and grant only the relief reasonably necessary to protect” the employer’s legitimate business interests.”  Id.  In New York, “[a] restraint is reasonable only if 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.”  Id.  Upon such a finding, the covenant is deemed invalid.  Id.

 Analyzing the two standards, the Court noted that, “whereas Florida shifts the burden of proof after the employer demonstrates its business interests (see Fla Stat § 542.335 [1] [c]), New York requires the employer to prove all three prongs of its test before the burden shifts.”  Florida also law explicitly prohibits courts from considering the harm or hardship to the former employee and conflicts with New York law which requires that courts “consider, as one of three mandatory factors, whether the restraint impose[s] undue hardship on the employee.”  Id. at 370.

 In deciding that the employment agreement’s choice-of-law provision was unenforceable in relation to the non-solicitation provision and that New York law governed the plaintiffs’ claim for breach of the non-solicitation provision, the Court noted Florida’s “nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee.”  Id.

 The lesson from this case is valuable for both employees and employers alike looking to protect their interests.  Given what is potentially at stake for individuals (a person’s ability or inability to make a living in their chosen field) or businesses dealing with non-solicitation agreements (an employer’s ability to protect its client base and avoid litigation expenses), it is essential to understand what language is reasonable to include and will actually be enforced in a court of law.  For those with businesses operating in multiple states hoping to include a choice-of-law provision into an employment agreement, the lesson is two-fold in making sure that the law of the chosen state will not be deemed unenforceable as against New York public policy.  For assistance in matters involving non-solicitation agreements or general employment contracts, please contact one of the attorneys at Flink Smith Law LLC at (518) 786-1800.