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Non-Authority for Non-Recruitment Covenants Under New York Law

By Richard C. Schoenstein

As hiring resumes in the financial services industry and elsewhere, potential employers undoubtedly will renew consideration of the recruitment of employees from competitors. While many employers have written employment contracts with restrictive covenants designed to hinder employees from departing for a competitor, the state and federal courts considering New York law have not uniformly enforced such provisions. Thus, many employers have attempted to utilize more specific contractual limitations on the conduct of former employees, including covenants variously referred to as “non-solicitation,” “non-recruitment,” “non-hire” or “anti-raiding” provisions, which are designed to prevent employees who leave from immediately turning around and poaching their now-former fellow employees to leave with them.

Significantly, the enforceability of a covenant not to solicit or recruit employees of one's former employer has never been addressed by the New York's highest court, the Court of Appeals. Variations of such provisions have been considered, and sometimes enforced through preliminary injunctions, by trial level New York state and federal courts. But these decisions turn on specific facts and typically fail to address the broad questions with intellectual rigor. Thus, the prevailing notion that non-recruitment provisions are somehow “easier” to enforce than broader non-compete covenants is not supported by case precedent. Instead, the analysis that has been applied to non-recruitment provisions simply mirrors the approach that has been used in typical non-compete cases for years.

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