Is Your Choice-of-Law Provision “Truly Obnoxious?”

How is your Choice-of-Law Provision?

New York businesses may want to review the choice-of-law provisions in their non-competition and non-solicitation agreements. In a recent decision, the New York Court of Appeals refused to enforce the choice-of-law provision in an employment agreement purporting to apply Florida law after finding that “applying Florida law on restrictive covenants related to the non-solicitation of customers by a former employee would violate the public policy of this state.”

The Facts of the Case

Plaintiff Brown & Brown of New York, Inc. (BBNY) recruited defendant Theresa A. Johnson to leave her former job to work for BBNY. On Johnson’s first day, she signed an employment agreement containing a Florida choice-of-law provision and a non-solicitation provision. The non-solicitation provision precluded Johnson, for two years following her termination of employment, from directly or indirectly soliciting, accepting or servicing any person or entity “that is a customer or account of the New York offices of [BBI and BBNY] during the term of this Agreement,” as well as certain prospective customers.

After working for BBNY for several years, Johnson was terminated. Less than one month later, she began working for defendant Lawley Benefits Group, LLC, a competitor of BBNY.

Shortly thereafter, BBNY filed suit to enjoin alleged violations of the agreement by Johnson and to recover damages against both Johnson and Lawley. The lower courts dismissed the claims related to the non-solicitation provision, finding that that the Florida choice-of-law provision was unenforceable.

The Court’s Decision

The New York Court of Appeals agreed that the Florida choice-of-law provision was unenforceable as against public policy. In reaching its decision, the state’s highest court acknowledged that parties are generally free to reach agreements on whatever contractual terms they prefer. However, it also emphasized that courts will not “enforce agreements…where the chosen law violates ‘some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.'” The court also noted that the public policy exception is reserved “for those foreign laws that are truly obnoxious.”

In this case, the court compared Florida and New York law concerning restrictive covenants in employment agreements. While it found similarities with respect to the extent that they both require restrictive covenants to be reasonably limited in time, scope and geographical area, and to be grounded in a legitimate business purpose, it also noted several key differences that made Florida’s law incompatible with the rationale behind New York’s restrictive covenant jurisprudence. As the opinion explains:

Considering Florida’s nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee — in contrast with New York’s requirements that courts strictly construe restrictive covenants and balance the interests of the employer, employee and general public — defendants met their “‘heavy burden’ of proving that application of Florida law[to the non-solicitation provision of the parties’ agreement] would be offensive to a fundamental public policy of this State.”

Message for New York Businesses

In light of the court’s decision in Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364 (2015), New York employers should be sure to evaluate the applicable laws of any jurisdiction named in a choice-of-law provision. If the laws are vastly different, particularly with respect to the burdens placed on employers vs. employees, they may be deemed unenforceable.

Message for New Jersey Businesses

The New Jersey Supreme Court, since at least 1992, has similarly held that choice of law contractual provisions that violate New Jersey’s public policy will not be enforced.