Restrictive Covenants: The Importance of Understanding Their Contractual Limits
April 29, 2020
If supermodel Tyra Banks has taught us anything about the modeling industry, it’s that the competition is fierce. Unfortunately, one Manhattan-based modeling agency and former agent aren’t learning this lesson on the runway—they’re learning it in a courtroom.
In a recent decision, the First Department upheld a portion of Justice Andrea Masley’s Order which enjoined a defendant modeling agent and modeling agency from unfairly competing, disclosing or misappropriating plaintiff’s confidential information, and interfering with plaintiff’s contractual relationship with its models, but refused to extend the terms of the employment agreement which prohibited the agent from contacting and soliciting models throughout the pendency of the litigation.
In Marilyn Model Management, Inc. v Derek Saathoff, 1 Model Management, LLC d/b/a One Management, a modeling agency brought an action seeking injunctive relief and damages for “flagrant and repeated breaches” of the non-solicitation and confidentiality obligations of its former agent, Derek Saathoff. Plaintiff’s complaint alleged that Saathoff unlawfully solicited at least six of the plaintiff’s models, two of which abandoned the plaintiff agency for Saathoff’s new agency, 1 Model Management LLC, also a named defendant in the action. Saathoff resigned from the plaintiff modeling agency to begin representing models with 1 Model, a direct competitor of the plaintiff. Despite his contractual obligations, one could assume Saathoff was not too concerned with keeping his actions a secret when he posted an image of a model, still under contract with the plaintiff, to his Instagram page, publicly welcoming her to his new agency.
Unfortunately for Saathoff, his employment agreement with the plaintiff included a series of non-solicitation obligations restricting Saathoff’s ability to solicit for the duration of his employment and for six months thereafter. Saathoff also agreed to keep plaintiff’s non-public information confidential during his employment and at all times thereafter.
The trial court underscored that pursuant to CPLR 6301, a party seeking injunctive relief must establish (1) the likelihood of success on the merits of the action; (2) the danger of irreparable harm in the absence of a preliminary injunction; and (3) a balance of equities in favor of the moving party (Gliklad v Cherney, 97 AD3d 401, 402 [1st Dept 2012] [citations omitted]).
As to the non-solicitation provision of the employment agreement, the lower court found a likelihood of success on the merits because plaintiff established the non-solicitation provision was reasonable: the restrictive covenant lasted only 6 months after termination, was restricted to the geographical limits of the tri-state area, and was based on an employer’s legitimate interest in “protection against misappropriation of [its] trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary (BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 ). The lower court was satisfied that the plaintiff would suffer actual and imminent injury if Saathoff was not enjoined from soliciting plaintiff’s models and that money damages would unlikely make plaintiff whole if Saathoff continued to hire away plaintiff’s models. Lastly, the lower court found the balance of equities to tip in plaintiff’s favor, stating that prohibiting Saathoff from soliciting plaintiff’s models would not deprive him of his livelihood nor prevent him from being successful at 1 Model.
As to the confidentiality provision, the lower court found the provision to be reasonable, “especially in this field,” and thus enjoined both Saathoff and 1 Model from (1) using, disclosing and/or misappropriating any of plaintiff’s confidential information; (2) unfairly competing with plaintiff through confidential information; and (3) interfering with the contracts between plaintiff and its models.
On appeal, the First Department affirmed that plaintiff successfully demonstrated its entitlement to injunctive relief by clear and convincing evidence. However, as it pertained to the non-solicitation provision, the First Department split from the lower court’s ruling which enjoined Saathoff from contacting or soliciting plaintiff’s employees throughout the duration of the action. The First Department noted that by the terms of the employment agreement, the restrictive covenant only applied to a term of six months following the termination of Saathoff’s employment. Saathoff’s termination became effective on September 25, 2018 and thus, the contractual restrictive covenant, by its terms, expired on March 25, 2019. Accordingly, the First Department found no basis for the injunction to remain in place for the pendency of the action.
Takeaway: Counsel should closely analyze the terms of employment contracts before seeking injunctive relief for violations of restrictive covenants—the Commercial Division will not extend them beyond their contractual limits even while litigation is pending.