"I Quit," "No, You're Fired!" New York Supreme Court Tells Employer to Think Twice Before Terminating Employees Without Setting Forth a Reason

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Justice Melvin L. Schweitzer of the New York Commercial Division recently issued a decision in Greater Talent Network, Inc. v. Alec Melman, et. al., Index No. 650522/2010 (Sup. Ct., NY County, Dec. 22, 2010) that can have important ramifications for New York employers.

Background

The plaintiff, Greater Talent Network (“GTN”), acts as an agent for celebrity speakers in connection with their dealings with event organizers and sponsors. Defendants Alec Melman and Daniel Ymar were employed by GTN as account associates, responsible for developing leads on events for GTN’s clients, obtaining speaking engagements for GTN’s clients, and assisting event organizers and sponsors in preparing for speaking engagements. GTN provided Melman and Ymar with access to GTN’s deal structures and confidential information so that Defendants could effectively carry out their job responsibilities.

Both Melman and Ymar had employment contracts with GTN pursuant to which they were to receive commissions in the amount of 35% of the net proceeds that resulted from their efforts. Their employment contracts further provided that if their employment was terminated for reasons other than “for cause” (as such term is defined in their contracts), then they were to receive a percentage of the amount that had already accrued to them for services performed and not paid out during their employment with GTN. Both of their contracts contained non-compete, non-solicit and confidentiality clauses that extended for a period of one year following the termination of their employment.

In April 2009, Melman and Ymar informed GTN of their intent to resign from their employment. In response, GTN immediately terminated Melman and Ymar without stating a reason and sent them a letter detailing their post-employment obligations, including the obligations set forth in their restrictive covenants. Melman and Ymar assured GTN that they would not contact any former customers or use any confidential information during the period set forth in their restrictive covenants. Melman and Ymar then incorporated Gotham Artists LLC (“Gotham”) to perform services that compete with GTN (Melman, Ymar and Gotham are referred to herein collectively as “Defendants”).

Procedural History

GTN commenced an action against Defendants for breach of contract, breach of duty of loyalty, unfair competition, and misappropriation. GTN alleged that Defendants had misappropriated GTN’s confidential information and that Melman and Ymar violated their non-compete and non-solicit obligations to GTN. Melman and Ymar filed a counterclaim against GTN for breach of contract alleging that GTN failed to pay them certain commissions. GTN filed a motion to dismiss Melman’s and Ymar’s counterclaim. Defendants then filed a motion for partial summary judgment arguing that the restrictive covenants set forth in their employment contracts with GTN are too broad in scope and, thus, invalid as a matter of law.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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