How Selective Are Courts In Applying The Defense Of Selective Enforcement?

• Published date: 18 July 2023
• Subject Matter: Employment and HR, Contract of Employment, Employment Litigation/ Tribunals
• Law Firm: Berman Fink Van Horn P.C.
• Author: Ms Ashley M. Bowcott

Restrictive covenants, such as noncompete and non-disclosure agreements, are commonly used in employment contracts to protect a company's business interests. However, employers often struggle to find the balance between sufficiently protecting those interests and conserving resources. Surely, it would not be a wise financial decision to file a lawsuit against every employee who joins a competitor. We recently examined whether inconsistent treatment when modifying restrictive covenants may constitute retaliation under Title VII. Selective enforcement poses other practical issues for both employers and employees.

THE EMPLOYER AND EMPLOYEE PERSPECTIVE

For employees, a key consideration when contemplating joining a competing business is whether the current employer has pursued litigation against other employees who have left for competitors. Employees may be lulled into a false sense of security if other employees have left without issue. When they leave, they may be surprised to find themselves on the receiving end of a cease-and-desist letter or lawsuit.

For employers, selective enforcement may present a hurdle to clear to succeed in litigation. A court may consider whether the employer has a legitimate business interest in stopping an employee from working for a competitor if it was lax in enforcing the covenant against other employees.

Whether on the employer or employee side, it is important to be aware of the concept of selective enforcement. It is also important to know how it may be raised in restrictive covenant litigation.

WHAT IS SELECTIVE ENFORCEMENT?

Selective enforcement occurs when an employer is inconsistent in its enforcement of restrictive covenants in its agreements against departing employees. It is a defense that argues the employer should be precluded from enforcing its restrictive covenants because it has failed to do so consistently and has ignored similar violations in the past. Often, the defense of selective enforcement is raised when an employer only sues employees who join a particular competitor, but permits others to join other competitors without issues.

IS SELECTIVE ENFORCEMENT A VALID DEFENSE TO RESTRICTIVE COVENANT LITIGATION?

Selective enforcement has not yet been adopted on a large scale, but certain courts have recognized the defense. Moreover, external factors such as the COVID-19 pandemic may impact the adoption of the selective enforcement defense by more courts.

ESTEE LAUDER COS. INC. V. BATRA

The Southern District of New York is one court that has recognized the defense of selective enforcement. In Estee Lauder Cos. Inc. v. Batra, Estee Lauder sought a temporary restraining order against a departing senior executive. 430 F. Supp. 2d 158 (S.D.N.Y. 2006). His agreement contained worldwide non-competition and non-solicitation restrictions for 12 months after his departure. When he joined another skincare company as the Worldwide General Manager, Estee Lauder filed suit.

The court weighed the balance between Estee Lauder's interests and the restrictions in the executive's agreement. In particular, it considered Estee Lauder's need to protect its confidential information and trade secrets. The court found that Estee Lauder's "general behavior surrounding the enforcement of restrictive covenants suggests that such a...