A Philadelphia County state court judge recently issued a preliminary injunction in favor of a law firm against a former associate enforcing a 60-day notice provision.  In doing so, the Court ruled that the former associate could not work elsewhere for 60 days and could not solicit his former employer’s clients.  If the decision is upheld and/or followed by other courts, it provides ammunition for employers to argue that notice provisions are not tantamount to non-competes.  Employees frequently argue that notice provisions may not be enforced because courts may not compel employees to work for an employer as such an order would run afoul of the Constitutional prohibition on involuntary servitude.  While that may be true, the injunction recently issued by the Philadelphia court reflects a possible appetite among the judiciary to prevent former employees from shirking their notice obligations without consequence.

Factual Background

Kline & Specter, P.C., is a personal injury law firm with offices in Pennsylvania, New York and New Jersey.  Robert F. Englert, Jr., Esquire, is a former associate who joined K&S straight out of law school.  During a preliminary injunction hearing, K&S’ counsel argued that Englert should be held to the terms of an employment agreement that required him to provide 60 days notice.  According to K&S, Englert should be precluded from working anywhere but K&S for the duration of his notice provision.  K&S reasoned that Englert failed to provide information needed by the firm to continue representing its clients.

The Court observed that K&S’ request sounded an awful lot like a restrictive covenant.  Such agreements are generally not enforceable against lawyers.  In fact, most states have adopted ethical rules similar to Rule 5.6 of the Model Rules of Professional Conduct that make it unethical for lawyers to make, or even offering to make, an “agreement that restricts the right of a lawyer to practice after termination of the relationship….”  

Over the years, courts and bar associations have interpreted these rules to prohibit the enforceability of restrictive covenants against lawyers.  For example, in Illinois, an appellate court held that non-competes are unenforceable against lawyers because they run afoul of the public policy embodied in Rule 5.6.  Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 481 (1998).  More recently, a New Jersey advisory committee on professional ethics rejected the use of agreements that try to restrict who a corporate counsel may represent after leaving the company.

Just how the Philadelphia Court managed to overcome its trepidation about K&S’ agreement is unclear.  Not long after the preliminary injunction hearing began, the courtroom was closed to the public and the record was sealed because Englert allegedly attached a copy of a disciplinary complaint to his filings.  Under applicable Pennsylvania rules, such complaints are to be kept confidential.  While one may speculate that K&S’ confidentiality concerns could have been addressed by something less than a complete sealing of the record, it is hard to determine exactly what measures would suffice given the secrecy surrounding the hearing. 

The docket entry, however, reflects the Court’s preliminary injunction.  (A copy is available in pdf format below)  According to the Court, K&S has a clear right to the relief it was seeking, and it stood to suffer irreparable harm and loss in the absence of such relief.  On this basis, the Court ordered Englert to (1) comply with all provisions of his employment agreement; (2) refrain from affiliating with a law firm or otherwise obtain employment other than with K&S (except as permitted in the employment agreement); and (3) not solicit K&S clients.  By its terms, the order remains in effect until September 5, 2011, or until the Court rules otherwise. 

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

Kline Spector v Englert.pdf (31.42 kb)

Give me ninety days notice, or sit on the sidelines for ninety days.  That's what a financial services firm just said to a former employee who resigned to join UBS Financial Services with support from the United States District Court for the Northern District of New York. 

In The Ayco Company, L.P. v. Brian D. Feldman, Ayco successfully obtained a preliminary injunction enforcing a ninety-day non-compete clause after Feldman failed to provide ninety days notice as required by his employment agreement.  Ayco is a financial services company that provides comprehensive financial counseling and education services for corporate executives, employees and wealthy individuals.  As a subsidiary of The Goldman Sachs Group, Inc., Ayco is not a broker-dealer itself, but it is an affiliate of Mercer, a broker-dealer primarily involved in the sale of variable annuities and variable life insurance. 

Brian Feldman began employment with Ayco in 2005 and had no prior industry experience and brought no clients with him to Ayco.  His employment agreement contained a provision requiring him to provide Ayco with ninety days notice of termination, during which time he would remain with Ayco and continue to be paid his base salary.  Although it is unclear whether Feldman would be permitted to continue working with clients during the notice period or whether he would be paid to stay home in the nature of a Garden Leave provision, the point became moot when Feldman resigned without notice to join UBS.  Feldman’s agreement stated that if he terminated employment prior to the end of the notice period, he would not work for a competitor anywhere in the United States for ninety days or for the unfulfilled balance of the notice period.  Feldman’s agreement (as well as another agreement he signed) acknowledged that Ayco’s customer list and related information was a trade secret, and noted Ayco’s legitimate interest in protecting such information and customer relationships.

After Feldman resigned without providing notice, Ayco sought a temporary restraining order and preliminary injunction to preclude him from working for UBS or any other U.S. competitor for ninety days.  To support its case, Ayco noted that Feldman retained a list of customer names, addresses, telephone numbers, and email addresses after he left.  Feldman argued that his conduct was consistent with the Protocol for Broker Recruiting, but the Court rejected this argument because Ayco was not a signatory to the Protocol. 

Feldman also argued that the agreement was unenforceable because its terms were unreasonable and because it prevented clients from working with the broker of their choice.  These arguments likewise fell on unsympathetic ears as the Court found the ninety-day limitation to be “well within what has been found to be a reasonable time frame for non-compete provisions.”  The Court also noted that Ayco had offered to continue to pay Feldman his salary during the non-compete period.  As for the argument that the non-compete prevented clients from working with the broker of their choice, the Court noted that Ayco did not seek to interfere with the transfer of any customer’s accounts and seeks only to enforce the non-compete for ninety days.

In short, the Court showed no reluctance in granting a preliminary injunction to preclude Feldman from working for a competitor for ninety days, and it directed Ayco to continue paying Feldman his salary retroactive from the date of the temporary restraining order.

A copy of the Court's opinion is available in pdf format below. 

As always, please feel free to share your thoughts and questions in the comment space below.  And if you have a topic or a case you believe we ought to address in an upcoming post, please let us know. 

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either by Mr. Greco or other members of the Practice Group, you may subscribe to this blog's RSS feed or follow Mr. Greco on Twitter at @MGrecoEsquire or Fisher & Phillips on Twitter at @labor_attorneys.

The Ayco Company v. Brian Feldman.pdf (212.29 kb)