Recent Decision Illustrates the High Standard for Obtaining Preliminary Injunctions to Enforce Non-Competition Agreements
November 11, 2011
By: Kristen E. Smith
Last week, the Second Circuit Court of Appeals affirmed a Southern District of New York decision denying IBM Corporation's application for a preliminary injunction to enforce a broad non-competition agreement and to prevent a former high-level executive from working for Hewlett-Packard. The case illustrates the high standard under New York law to obtain preliminary injunctions to enforce non-competition agreements.
The case involved Giovanni Visentin, who worked for IBM in numerous roles during his 26 years of employment. His most recent position was General Manager of IBM's Integrated Technology Services ("ITS") business. In that position, he was responsible for the development and sale of ITS products and services throughout North America. In January of 2011, Mr. Visentin submitted his resignation from IBM to accept a position with Hewlett-Packard in the position of Senior Vice President, General Manager, Americas for Hewlett-Packard Enterprise Services.
Mr. Visentin had signed a non-competition agreement during his employment with IBM, which, on its face, seemed to preclude Mr. Visentin from working in his new position at Hewlett-Packard. The non-competition agreement provided that Mr. Visentin would not, during his employment and for a period of 12 months following the termination of his employment, become employed by any competitor of IBM in any geographic area in the world for which Mr. Visentin had job responsibilities during his last 12 months of employment with IBM. Clearly, Hewlett-Packard is one of IBM's principal competitors. However, the Southern District of New York held that the non-competition agreement was overly broad and refused to grant the preliminary injunction requested by IBM.
The Court reiterated the standard under New York law that "properly scoped non-competition agreements are enforceable to protect an employer's legitimate interests so long as they pose no undue hardship on the employee and do not militate against public policy." The Court also recognized that the protection of confidential information and trade secrets are legitimate interests of an employer in enforcing a non-competition agreement. The Court found, however, that the evidence did not support IBM's contention that any of its confidential information or trade secrets would be in jeopardy as a result of Mr. Visentin's employment with Hewlett-Packard.
The evidence indicated that Hewlett-Packard took steps to fence Mr. Visentin off from his former IBM clients and to avoid any overlap in responsibilities between his position with IBM and his new position with Hewlett-Packard. The new position was structured so that it was different from his IBM position in terms of subject area, geographic scope, and level of responsibility. For example, Hewlett-Packard narrowed Mr. Visentin's responsibilities during his first 12 months of employment (i.e., the length of the non-competition agreement) to include primarily segments of Hewlett-Packard's business for which he did not have responsibility during his employment at IBM. In the few segments for which Mr. Visentin did have responsibility during his employment at IBM, Hewlett-Packard made sure that Mr. Visentin worked only with existing Hewlett-Packard clients. In the geographic regions where Mr. Visentin had no responsibility during the last year of his employment with IBM, Mr. Visentin was responsible for Hewlett-Packard's full range of products and services for all existing and potential clients.
Based on all of these factors, the Court concluded that IBM had not satisfied its burden of demonstrating that any of its confidential information or trade secrets would be disclosed or relied upon by Mr. Visentin as a result of his new position at Hewlett-Packard, and refused to grant the application for a preliminary injunction.
For an employer seeking to hire a new employee who may have signed a non-competition agreement with a former employer, this case can serve as a blueprint of the steps that the employer can take to minimize the risk that the non-competition agreement will be enforced.