On December 16, 2021, the First Department issued a decision in Newmark Partners, L.P. v. Hunt, 2021 NY Slip Op. 07065, holding that a noncompetition agreement that was reasonably limited in time and scope was enforceable, explaining:
Plaintiffs demonstrated a likelihood of success on the merits of their action to enforce a noncompetition provision. The noncompetition provision satisfies the requirements of Delaware law, which governs, per the choice of law provision in the governing agreement. The provision is reasonable in geographic scope and temporal duration, advances a legitimate economic interest of plaintiffs, and survives a balancing of the equities.
Whether or not the originally contemplated nationwide scope would have been reasonable, the narrowed geographic scope imposed by the motion court is reasonable — and defendants do not argue otherwise.
The two-year temporal duration, which was further reduced by the motion court to one year, is also reasonable — notwithstanding that it did not begin to run until defendants left plaintiffs’ employ.
The noncompetition provision also advances a legitimate economic interest of plaintiffs, i.e., protection of the business’s goodwill. The fact that plaintiffs enjoyed the benefits of the goodwill stemming from defendants’ continued employment for 6½ years after the purchase of their former company does not mean that plaintiffs did not have a continued legitimate economic interest in protecting that goodwill upon defendants’ subsequent departure.
Plaintiffs also demonstrated that they will suffer irreparable harm absent an injunction in the form of loss of goodwill, reputation, and client relationships and client transfer to their primary competitor. Indeed, irreparable harm is presumed from the breach of a noncompetition provision intended to protect the purchase of a business and accompanying goodwill.
The balance of equities also favors an injunction. Plaintiffs seek to protect their client relationships, reputation, and goodwill after losing all or almost all of their multifamily property group to their primary competitor. The fact that this group represents only a small portion of plaintiffs’ total business is immaterial; it clearly has some value, and plaintiffs are entitled to protect that value.
Plaintiffs are also the nonbreaching party. Even if defendants did not solicit clients or misappropriate confidential information, there is evidence that they induced other employees to leave with them, in violation of their nonsolicitation obligations, and it is clear that they left plaintiffs’ employ to join a competitor in knowing disregard of their noncompetition obligations and advertised their move in violation of their obligations not to promote a competing business.
It is true that the potential losses to defendants from an injunction are significant: they will be forced to pause their careers for a year, with possible long-lasting impacts on their career development. However, defendants were able to take steps to mitigate at least the resulting financial hardships, by, among other things, negotiating signing bonuses, loans, and temporary, noncompeting positions at their new firm. They were also aware of the risks when they made the conscious decision to leave plaintiffs’ employ for a competing firm in violation of the noncompetition provision.
Moreover, defendants were well compensated in connection with the sale of their interests in their prior company that resulted in these restrictions on their employment — even if part of this compensation reflected incentive payments. That reality is not negated by the facts that defendants have already generated a lot of revenue for plaintiffs and that plaintiffs have used their departures as an opportunity to retain earned equity and commissions that defendants would otherwise have received.
(Internal quotations and citations omitted).