Too 'Obnoxious' To Enforce: New York Court Refuses To Apply Florida Law In Considering Restrictive Covenants

Recently, a New York appellate court concluded that an employer could not rely upon a Florida choice-of-law provision in an employment agreement to enforce restrictive covenants against a former employee, even though the employer was a Florida parent corporation with its principal place of business in Florida. The Supreme Court of New York's Appellate Division, Fourth Judicial Department ruled that the Florida choice-of-law provision was unenforceable because it was "truly obnoxious" to New York public policy. See Brown & Brown, Inc. v. Johnson, 980 N.Y.S.2d 631 (4th Dep't 2014).

In this case, the employment agreement contained three restrictive covenants: (i) a non-solicitation covenant, which prohibited the defendant-employee from soliciting or servicing any client of the employer for two years after termination; (ii) a confidentiality covenant, which prohibited the employee from disclosing the employer's confidential information or using it for her own purposes; and (iii) a non-inducement covenant, which prohibited the employee from inducing current employees from leaving for two years after termination. The employment agreement also stated that it would be governed by, construed, and enforced according to Florida law.

Florida law, which addresses "all contractual restrictions such as noncompetition/nonsolicitation agreements, confidentiality agreements, exclusive dealing agreements, and all other contractual restraints of trade," among other things, expressly forbids courts from considering the hardship imposed upon an employee in evaluating the reasonableness of a restrictive covenant. Florida Statute § 542.335(1)(g)(1) provides that "[i]n determining the enforceability of a restrictive covenant, a court ... [s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought." (emphasis added). The statute further requires courts to construe restrictive covenants in favor of the party seeking to protect its legitimate business interests, stating that courts "shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract." § 542.335(1)(h).

By contrast, under New York law, determining whether a restrictive covenant is reasonable involves the application of a three-prong test:

Is it greater than required for the protection of the employer's legitimate...