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Employer With Minimal Contacts In New York Allowed To Enforce Restrictive Covenants

In a recent non-compete case filed in the New York Supreme Court in Suffolk County, Long Island, the court was none too protective of two employees accused of violating their employment agreements, denying their motion to dismiss their former employer’s complaint.

In Frontiers Unlimited LLC v. Claudette Greenstein, Kathy Silanovich, et. al., 2013 N.Y. Slip Op. 51488(U) ( Sup. Ct., Suffolk, September 9, 2013), Defendants were employed by a real estate advertising firm in the Hamptons. Both signed confidentiality agreements in 2004 with Frontier in which, among other things, they agreed not to sell any services related to real estate advertising in the Hamptons for competition or to solicit Frontier customers for a period of two years after their employment terminated. In 2012, both resigned from Frontier to join M3 Media Group which published competing real estate advertising magazines. Frontier (and its subsequent purchaser Homes & Land LLC), sued its former employees and their new employer, M3 Media, to enforce the restrictive covenants claiming, among other things, breach of contract, misappropriation of trade secrets, and tortious interference with contracts.

Defendants moved to dismiss the action for lack of standing. They, argued that because Homes & Land was a Delaware corporation not registered to do business in New York, Section 1312 of the Business Corporation Law barred it from bringing suit. The court carefully analyzed Homes & Land’s business activities in the state and found that they were not at a level that, in fact, required Homes & Land to register. The court explained that a foreign corporation must conduct continuous activities in New York that are essential to its corporate business before it will be required to register to do business, a standard that requires a greater amount of local activity than the more familiar “doing business” test under New York’s long-arm statute. Using this framework, the court found that Homes & Land was not required to register to do business in New York, noting among other things that it had a separate New York company—Frontiers—that handled its New York activities

This case demonstrates the New York will go to significant lengths to provide employers an opportunity to achieve the benefit of their restrictive covenant bargain.

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