Court Explains the “Employee Choice Doctrine” Relating to Non-Competition Agreement

In International Business Machines Corporation v. Naganayagam, 2017 WL 5633165 (S.D.N.Y. Nov. 21, 2017), the court explained and applied the “employee choice doctrine” pertaining to restrictive covenants in a contract of employment.

Initially, the court found that the defendant breached his employment contract with IBM (his former employer) by proceeding to work for a competitor, which fell within the definition of “detrimental activity”, thereby allowing IBM to “cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Awards at any time”.

Next, the court turned to the issue of the contract’s enforceability.

It explained:

New York courts have generally concluded that restrictive covenants in employment contracts—such as non-compete, non-solicitation, and non-recruitment clauses—must be subjected to heightened judicial scrutiny since they potentially impinge on individual agency and an employee’s ability to make a living. … One notable exception to this rigorous scrutiny, however, is the employee choice doctrine. …

Under the employee choice doctrine, New York courts will enforce a restrictive covenant without regard to its reasonableness if the employee has been afforded the choice between not competing (and thereby preserving his benefits) or competing (and thereby risking forfeiture). … To be applicable, the employee must have left his employment voluntarily and his former employer must have demonstrated its “continued willingness to employ the party who covenanted not to compete.

Applying the law, the court held that the rescission of defendant’s awards was permitted under the employee choice doctrine. It noted, inter alia, that plaintiff voluntarily resigned and that defendant testified that his supervisor at IBM expressed a desire to match his subsequent employer’s offer and keep defendant at IBM. Based on this, the court concluded that “[d]efendant was clearly afforded the choice of continuing to receive awards by refraining from competing with IBM, or forfeiting the monetary value of Awards …^[1]Ed.: Apparently redundant text removed; see original opinion for context. by competing with IBM.”