Employment agreements often include restrictions barring people from soliciting, recruiting or "raiding" employees from their former workplaces. Unlike covenants not to compete with a former employer, the purpose of an anti-raiding provision is to keep an employer's current workforce intact for a period of time and to stop a former employee from provoking a mass exodus. Until recently, New York courts largely ignored the enforceability of such anti-raiding provisions. Of the few courts to discuss the enforceability of anti-raiding provisions, some have likened them to covenants not to compete with a former employer. But, there are significant differences between these types of agreements: an agreement barring someone from joining a competing business arguably hinders one's ability to earn a livelihood, whereas an anti-raiding agreement does not similarly constrain the departing employee's ability to work. Courts should recognize these inherent differences between an anti-raiding provision and a covenant not to compete and should not try to analyze their respective enforceability under the same test.
In January 2012, the federal court in the Western District of New York analyzed the distinctions between anti-raiding provisions and non-compete agreements, explaining why the differences impact the enforceability of anti-raiding covenants. Renaissance Nutrition v. Jarrett, No. 08-CV-800S, 2012 WL 42171 (W.D.N.Y. Jan. 9, 2012). The court explained that "a non-recruitment clause, as opposed to a non-compete clause, does not infringe on an employees [sic] ability to engage in an occupation, but merely infringes on his ability to recruit former co-workers to engage in competitive business." Id. at *5. The court found that this important distinction makes anti-raiding provisions "inherently more reasonable and less restrictive" than non-compete provisions. Id.
New York courts are generally very protective of an individual's ability to earn a livelihood, which leads them often to strike downor to enforce only partiallynon-compete agreements that impose significant restrictions on when and where someone can work. Courts have taken the view that, in the absence of a substantial concern over legitimately protectable interests such as trade secrets or confidential information, it is harmful to competition and fundamentally unfair to the employee to force him to sit on his hands and remain unemployed for years rather than engaging in healthy competition with his former employer. In contrast, an anti-raiding provision does not thwart competition or force anyone into unemployment. An anti-raiding provision simply cuts off one channel through which an employer might obtain new employeesa former employee cannot solicit certain people to join him at a new job.
In spite of these fundamental differences, the Renaissance court found that the employer's anti-raiding covenantlike other non-compete agreementswas still subject to an overriding requirement of reasonableness and applied the three-prong reasonableness test set out by the New York Court of Appeals in the seminal case BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). Under this test, which is used to analyze the enforceability of non-compete agreements, to be enforceable, the restraint must (1) be no greater than is required for the protection of the legitimate interest of the employer, (2) not impose undue hardship on the employee, and (3) not injure the public.
Although the Renaissance court applied the same basic framework to analyze an anti-raiding provision as courts use to evaluate non-compete provisions, the court noted that its analysis under this framework differs when applying it to anti-raiding provisions versus non-compete provisions. While the Renaissance court held that courts must analyze the temporal and geographical scope of both types of provisions, it recognized that broader restrictions may be appropriate for anti-raiding covenants. For example, an agreement not to compete for five years would likely be unenforceable as overly restrictive, but an agreement not to solicit employees for five years might well be enforceable.
Until the Western District's recent decision in Renaissance Nutrition v. Jarrett, there had been a surprising dearth of case law analyzing the enforceability of anti-raiding provisions. The few cases addressing the issue failed to engage in a robust analysis of the inherent differences between anti-raiding and non-compete covenants.
Mixed Pre-'Renaissance' Case Law
Before the recent Renaissance decision, several courts held anti-raiding provisions were enforceable because they do not adversely impact the public in the way that non-compete agreements do. In 2000, the New York Appellate Division, Second Department, held, without applying any test for reasonableness, that a restrictive covenant barring solicitation of certain employees did not "violate public policy" and was therefore enforceable. Veraldi v. American Analytical Laboratories, 271 A.D.2d 599, 601, 706 N.Y.S.2d 158 (2d Dept. 2000).
Later that year, a federal court in the Northern District of Illinois applied New York law and recognized the enforceability of covenants not to solicit employees, fleshing out the general statement from Veraldi that such a covenant did not "violate public policy." Automated Concepts v. Weaver, No. 99 C. 7599, 2000 WL 1134541 (N.D. Ill. Aug. 9, 2000). Denying the defendant's motion to dismiss plaintiff's complaint for breach of an anti-raiding covenant, the court stated:
Unlike a covenant not to compete, which has the potential of threatening a person's livelihood, a covenant not to solicit employees merely prohibits a person from pirating employees of the former employer and inducing them to work for another entity.
Id. at *4. The court found that "the public's right to utilize the talents and abilities of [the former employee] is hardly burdened"he is only prohibited from raiding his former employer and taking its employees. Id. at *3. Moreover, the court recognized that an anti-raiding covenant "does not prevent any employee from seeking better work opportunities because he or she is free to find another job on his or her own." Id. at *4.
The following year, the federal court in the Southern District of New York granted a preliminary injunction enforcing an anti-raiding provision. Natsource v. Paribello, 151 F. Supp. 2d 465, 469-72 (S.D.N.Y. 2001). The court focused on the resources the employer expended on the development of customer relationships by employees and the fact that a one-year restriction on recruiting other employees would not hinder the former employee. Id. The court found the concern that the former employee would lose his livelihood because of his inability to recruit others from his former employer was "virtually non-existent." Id. at 472.