Kudos to you, ABC, for bringing this story to light.

And shame on you, Cubist Pharmaceuticals, for your discriminatory narrow-mindedness.

Kara Krill who works for Massachusetts-based Cubist Pharmaceuticals, recently had twin children via a surrogate. She was compelled to have these children through a surrogate because she had health issues that prevented her from having children in the conventional manner.

Naturally, she was overjoyed when she learned that the surrogacy resulted in the anticipated birth of not one – but two children. That is, until the HR department at her employer responded that she would be denied the 13 full weeks of paid maternity leave that was set forth in their written policies, and instead would be granted only a 5 day leave of absence that is traditionally reserved for children that are adopted, or for fathers seeking paternity leave. Moreover, according to Krill, one of her bosses commented that she  should “‘put [her] twins in daycare,’ so she could come back to work sooner.’”

Mrs. Krill has now sued her employer in federal court, claiming that her employer has breached their contract, and their covenant of good faith and fair dealing, and has openly discriminated against her based upon her disability.

I, for one, am rooting for her.

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Although I’ve written extensively on the subject of non-compete agreements, setting forth some of the general principles and the exceptions to those rules that help dictate whether a particular non-compete agreement will or won’t be enforced by a New York court, I must concede that it’s often hard to predict with any degree of certainty what a New York court will do.

That’s why I give kudos to attorney Stephen Kramarsky, Esq., who authored an excellent article on New York non-compete agreements that recently appeared in the New York Law Journal.

The premise of his article is this: critical analysis of the courts’ treatment of non-compete agreements has shown time and again that the question of whether these provisions will be upheld or rejected turns on the unique and specific facts of each case. Further complicating an attorney’s ability to predict the outcome of a challenge to a non-compete agreement, the courts have frequently vacillated on these provisions  – even when the employees’ agreements and positions were essentially the same, and even at the same company.

For example, in International Business Machines Corp. v. Visentin, a Federal Court in New York denied IBM’s request for a preliminary injunction seeking to enforce a non-compete agreement;  But in IBM Corp. v. Papermaster, a case that was decided just over two years ago, the same Federal Court upheld the restrictive covenant, holding that by allowing Visentin to work for Apple would “inevitably” lead to the disclosure of critical proprietary information.

Quite frankly, it is hard to fault IBM for assuming they would win this fight; after all, both Papermaster and Visentin were “key, high-level technical managers, members of IBM’s most important senior management committee with responsibility for some of the company’s most important business initiatives.”

But that underscores the essential point made above: it is very difficult to predict accurately whether a New York court will enforce a non-compete agreement, particularly when you’re dealing with senior-level employees.

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Here’s the general rule in New York: if an employee is fired without cause, any non-compete agreement he or she signed will no longer be enforceable. And the reason for this is fairly straightforward – because once the employer is no longer keeping up their end of the contract, the employee shouldn’t be forced to do so (in legalese, “there no longer exists the mutuality of obligation on which the covenant rests”).  The seminal case in New York addressing the issue of what constitutes termination for cause, and what constitutes termination that is without cause in the context of non-compete agreements (a.k.a. “restrictive covenants”) is Post v. Merrill Lynch, Pierce, Fenner & Smith Inc., 48 NY2d 84, 87 (1979). For more information on that topic, please see “When NY Courts Will Uphold Non-Compete Clauses – No Matter How Unreasonable,” and “When NY Employers Condition Receipt of Post-Employment Benefits on a Non-Compete.”

But what about if the employee is terminated for cause? Will the non-compete be enforceable then under New York law?

The short answer is this: Yes.

Although there are relatively few reported decisions on this particular issue, both New York State and Federal trial courts have read the Post v. Merrill, Lynch decision to permit enforcement of non-compete clauses against employees that were terminated for good cause. See, e.g., Gismondi, Paglia, Sherling, M.D., P.C. v. Franco, 104 F.Supp.2d 223 (S.D.N.Y. 2000); MTV Networks v. Fox Kids Worldwide, Inc., 1998 WL 57480 (Sup.Ct. NY Cty. 1998).

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Maybe the third time is the charm.

In a high-profile breach of contract and tortious interference lawsuit, the National Football League’s Tennessee Titans have sued former NFL coach ,and current USC coach Lane Kiffin, charging that he improperly poached their coaching ranks, inducing Titans running backs coach Kennedy Pola to breach his employment agreement with the Titans in favor of joining Kiffin at USC.

Unfortunately, the article discussing this lawsuit gives precious little details about the nature of the breach of contract. My guess is that there was some sort of non-compete clause in the agreement.

Assuming that is the case, here are some important factors that would be considered if it had been brought in New York: as noted in “Is My Non-Compete Agreement Enforceable Under New York Law?“, New York’s courts, as a general rule, strongly disfavor non-compete agreements because there are “‘powerful considerations of public policy which militate against sanctioning the loss of a man’s livelihood.”

Therefore, a New York court would look to see if the agreement with this coach was reasonable in its geographic scope and duration, whether it imposes an undue hardship on this particular coach, and whether it is reasonably calculated to protect the legitimate interests of the Titans.

That aside, since tortious interference claims require proof of an intentional act, the Titans would likely face an uphill battle in a New York court on those claims.

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In a blog piece that was published in yesterday’s Wall Street Journal, it was reported that OfficeMax has sued A & P, the well-known supermarket chain, seeking a restraining order barring them from poaching key employees. Apparently, OfficeMax felt compelled to take this action after 3 of their key employees left, including their former chief operating officer and two of his subordinates.

As part of their claim, they have also charged the former COO, Sam Martin, with violating the non-compete clause of his employment agreement, with breach of contract and breach of fiduciary duty, claiming that his employment contract with OfficeMax explicitly barred him from soliciting, or poaching, employees away OfficeMax’s ranks.

There’s just one big fly in this particular ointment, however.

Since A & P has filed for bankruptcy protection, certain legal actions against A & P are prohibited, such as pursuing litigation against the bankruptcy debtor’s property. (For additional information on this, please see Bankruptcy Code Section 362).

The question is whether this particular claim would also be subject to bankruptcy protection. A & P’s argument that forcing it to defend this lawsuit would effectively deprive it of one of the chief benefits of bankruptcy protection – i.e., immunity from lawsuits – definitely has some merit.

But I don’t think that it is the better policy in cases of this nature. While I understand shielding a bankruptcy debtor from money judgments, that protection should not be without limits; it should not allow them to act deliberately and intentionally raid other companies’ leadership without consequence.

My guess is that OfficeMax will attack A & P’s response as follows: a restraining order is inherently equitable in nature -  it does not seek damages, and therefore is not the type of claim insulated from suit by the Bankruptcy Code. In addition, to the extent any damages are sought, it would appear that they are targeted at the individual defendant, Mr. Martin, rather than at A & P.

For now, we’ll just have to wait and see how this case shakes out.

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I’ve spoken with many people who, when confronted with the possibilities of starting their own business, hesitate – and not a small bit – because of their fear that they will forfeit their severance package from their current employer. Stated in slightly different fashion, they are concerned that any effort they expend to start a new business while they are still employed will be perceived as employee disloyalty, or, in legal terms, a breach of fiduciary duty, and thereby nullify their right to severance.

But is that fear grounded in reality?

The short answer under New York law, as you might well guess, is that it depends on whether you have a formal written severance agreement, and if so, what the agreement says. For example, in a July 1 decision in Coastal Sheet Metal Corp. v. Vassallo, New York’s Appellate Division, First Department held that the plaintiff’s former CEO had forfeited his right to his severance package because “the [trial] court’s finding that [defendant] breached his employment agreement by ‘violat[ing] the trust of his position’ negates [his] claim for severance, as a matter of law.”

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If you read my previous blog post, “How a Demotion Can Be Deemed a Breach of Employment Agreement Under NY Law,” you are probably wondering (or should be) the following: let’s assume a fact finder (i.e., whether a judge or jury) finds that my employer breached my employment agreement. What damages can I reasonably expect to recover under New York law?

As you might expect, the answer is a little bit complicated, and the determination of the right measure of damages is inherently fact-specific. That said, here are some of the major principles at play:

First, and as a threshold matter, the employee is entitled to recover the amount of salary and other benefits that (he, she) would have received under the contract – and here’s the important caveat – less certain deductions. (It’s the “fine print that always gets you, isn’t it.)

Those deductions allow the employer a set-off of those amounts that the employee, using his/her best efforts, either earned, or should have earned from other employment since the date that the agreement was ended. However, on this point the defendant bears burden of proving the amount the plaintiff could – or should – have earned through diligent efforts.

Additionally, although the newly-discharged employee is required to try to find similar employment, that does not mean that he/she is barred from starting his/her own business.  It is just that the damages will still be reduced by what plaintiff can reasonably be expected to earn from the venture during the unexpired term of the contract, Cornell v T. V. Development Corp., 17 NY2d 69, 268 NYS2d 29, 215 NE2d 349.

One final point is in order here: the expenses that were necessarily incurred by the employee in the course of seeking new gainful employment are recoverable – provided that the employee has conducted the job search in good faith, and with reasonable prudence, and skill.

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Consider the following hypothetical scenario: Jim is hired by ABC Stores as Executive VP of Sales and Marketing. His 3-year employment contract states that all managers at ABC’s stores are required to coordinate their in-store marketing efforts through him, including securing his approval of all vendors.

Six months later, ABC brings in its CFO’s son Peter into the company, who has just received his MBA. Within one week of Peter starting his job at ABC, Jim notices that 3 of ABC’s 25 store managers failed to forward him their monthly marketing proposals. Two months later, that number increased to 20 out of the 25. And now, he also learns from two of his favored vendors that Peter, whose title is now Senior Vice President, terminated ABC’s agreements with them – all without Jim’s knowledge, and that he circulated a confidential memorandum – which also bore the CEO and CFO’s signatures – directing that all sales and marketing efforts now be run through him, rather than Jim.

In the face of this embarrassment and the stripping of all his essential job duties, Jim feels compelled to resign. But he is concerned: the job market is much worse now than when he signed the contract, and if he quits, won’t he be automatically forfeiting his right to recover under the employment contract?

Fortunately for Jim, under New York law the answer is no. In New York, if an employee is hired to fill a particular position, any material change in (his, her) duties, or a significant reduction in rank may qualify as a breach of the employment contract. On the other hand, and in the interests of full disclosure, resignation is not without risk: although in this particular fact scenario it is unlikely, a jury may ultimately decide that the change in duties that the employee suffered were not in fact “significant,” and defeat the employee’s breach of contract claim.

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As you may be aware, it has become increasingly common for employers to condition their employees’ receipt of post-employment benefits upon the employees’ agreement to abide by a strict non-compete clause.  So here’s the question (which, unfortunately, occurs altogether too frequently): what if the non-compete is unreasonably and unduly restrictive (i.e., prevents you from using your acquired knowledge and expertise to earn a living), and your job has become intolerable to the point you want to quit?

Unfortunately, for purposes of evaluating the enforceability of a non-compete, or non-competition agreement, the difference between voluntarily resigning and being fired is quite important under New York law. This is known in legalese as the “employee choice doctrine.” (For additional information on this topic, please see “When NY Courts Will Uphold Non-Compete Clauses – No Matter How Unreasonable“).

As a tacit exception to New York’s rule that disfavors non-compete agreements, the employee choice doctrine is based on the notion that “if the employee is given the choice of preserving contract rights by refraining from competition or risking forfeiture of such rights by exercising a right to compete, there is no unreasonable restraint upon an employee’s right to earn a living.” Post v Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 NY2d 84, 421 NYS2d 847, 397 NE2d 358.

But there is a way to defeat this exception.

In case you didn’t already know it (and I suspect that’s most people), you don’t have to actually be fired in order to be considered fired from a job under New York law, and thereby effectively invalidate the non-compete agreement. But as you might suspect, the test to satisfy this doctrine, which in legalese is called “constructive termination” or “constructive discharge,” is difficult to prove.

The test for constructive discharge was established by the Federal courts, and occurs “when the employer, rather than acting directly, deliberately makes an employee’s working conditions so intolerable that the employee is forced into an involuntary resignation” ( Pena v. Brattleboro Retreat, 702 F.2d 322, 325 [2d Cir.1983]. A claimant can prove that she was constructively discharged by establishing that the working conditions “[were] so difficult or unpleasant that a reasonable person in the employee’s shoes would have felt compelled to resign” ( Pena, 702 F.2d at 325 ).

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It seems to me that many people are under the impression that your hands are completely tied, and you have no immediate recourse to the New York State courts if your former employer breaches your severance agreement. While in many cases, e.g., where the severance plan is governed by ERISA (in which case a common law breach of contract is automatically barred (“pre-empted”), these cases may prove quite difficult, there are some cases – and they are not insignificant – where a discharged employee can still recover damages for unpaid severance benefits.

So what does a plaintiff have to prove in order to win one of those cases?

Although the list is short, as a practical matter marshaling this proof is not simple:

The plaintiff must prove “that the employer made a regular practice of making severance payments and that the plaintiff detrimentally relied on the severance policy, Skarren v Household Finance Corp., 296 AD2d 488, 745 NYS2d 556; Hirschfeld v Institutional Investor, Inc., 260 AD2d 171, 688 NYS2d 31; see Gallagher v Ashland Oil, Inc., 183 AD2d 1033, 583 NYS2d 624; see also Spencer v Christ Church Day Care Center, Inc., 280 AD2d 817, 720 NYS2d 633 (in order to recover for accumulated vacation time, at will employee must establish regular practice of paying employees unused vacation and reliance upon that practice in accepting or continuing position).”

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