{"id":31264,"date":"2016-03-31T19:21:19","date_gmt":"2016-04-01T00:21:19","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/ensuring-fair-competition-when-a-former-employee-has-no.html"},"modified":"2017-12-06T09:13:03","modified_gmt":"2017-12-06T14:13:03","slug":"ensuring-fair-competition-when-a-former-employee-has-no","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/business-operations\/ensuring-fair-competition-when-a-former-employee-has-no.html","title":{"rendered":"Ensuring Fair Competition When A Former Employee Has No Restrictive Covenants: Common Law Protections for Employers"},"content":{"rendered":"
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Here is the situation: A high-level executive has worked for your company for ten years. She recently developed marketing and strategic plans for the company’s new products. She has had access to documents concerning the company’s strategic plans to compete, financial goals, pricing strategy and promotional events for the next few years. And she has participated in recent meetings at which the company discussed this information. The executive has never signed any restrictive covenant agreement and is an at-will employee. The executive abruptly tenders her resignation and announces her intent to assume a similar position with one of the company’s main competitors. This situation is not just hypothetical, it was the basis for a lawsuit between two major competitors in the beverage industry. [See Pepsico, Inc. v. Redmond<\/a><\/i>, 54 F.3d 1262 (7th Cir. 1995).]<\/p>\n

Does the company have any protection from unfair competition by the executive even though she never signed a restrictive covenant? Absolutely. This article discusses the company’s rights and protections. But first, the former employer needs to understand the executive’s rights.<\/p>\n

Employee’s Rights In the Absence of Any Restrictive Covenant<\/b><\/p>\n

An employee may apply for a competitive job or even form a competing business while still working for the employer, so long as he or she does so on his own time and with his own resources, absent specific contractual restrictions. [Frederic M. Reed & Co. v. Irvine Realty Group, Inc<\/a><\/i>. 723 N.Y.S.2d 19, 20 (1st Dep’t), app. denied, 96 N.Y.2d 720 (2001).] Likewise, an employee without a restrictive covenant is free to resign and immediately begin working for a competitor of his former employer and immediately begin soliciting his former employer’s customers and employees. Furthermore, at his or her new job, the employee is free to use the skills and knowledge acquired by the overall experience of his previous employment. [Marietta Corp. v. Fairhurst<\/a><\/i>, 754 N.Y.S.2d 62, 66 (3d Dep’t 2003) (quoting Reed, Roberts Assoc. v. Strauman<\/i>, 40 N.Y. 2d 303, 307 (1976)).] Mere knowledge of the intricacies of a business will not justify restricting a former employee from full-blown competition. [Colonize.com v. Perlow<\/i> , 2003 U.S. Dist. LEXIS 20021, *16 (N.D. N.Y. Oct. 23, 2003).]<\/p>\n

So, in the absence of a restrictive covenant agreement, how can an employer protect itself from unfair competition by a former employee?<\/p>\n

A Current Employee’s Duty of Loyalty<\/b><\/p>\n

The common law duty of loyalty provides the employer with significant protections. This duty imposes obligations on both current and former employees, as a matter of law, regardless of any restrictive covenant agreement that may exist between the employee and employer.<\/p>\n

Under New York law, an employee must exercise the "utmost good faith and loyalty" in the performance of his or her duties. As a general matter, an employee may not, while employed, act contrary to the employer’s interests. More specifically, under New York’s common law duty of loyalty, a current employee:<\/p>\n