Court Dismisses A Non-Compete Case At The Pleading Stage and Seals The Record To Protect The Employer’s Trade Secrets
An employee’s two-year non-compete agreement expressly provided that it would expire immediately if he were terminated “without cause.” After the employment relationship ended, the employer sued the former employee on claims including tortious interference, breach of fiduciary duty, and unfair competition, alleging that while still employed, the employee had formed and actively operated a competing business and recruited his co-workers to join him in that business. The court dismissed the complaint at the pleading stage – a rare outcome in this type of case– in Greystone Funding Corporation v. Kutner, 2013 N.Y. Misc. LEXIS 5525, 2013 NY Slip Op 32980(U) (Sup. Ct. N.Y. Co. 2013). The decision offers three key take-aways:
- The court relied on explicit language in the non-compete provision rather than subscribing to the common – though erroneous – belief that termination “without cause” per se prohibits enforcement of a non-compete provision;
- The court dismissed the employer’s case on the pleadings because the employer had failed to plead each element of each cause of action with sufficient particularity; and
- The court sealed portions of the record, finding that the record “contained impressions and contemporaneous notes that could harm … [the employer’s] competitive advantage by having access to a large compilation of their business leads and their internal and contemporaneous impressions.”