Duhaime's Law Dictionary


Employee Choice Doctrine Definition:

The forfeiture of a departing employee's right to judicial review of a restrictive covenant if that employee agreed voluntarily to receive post-employment benefits as consideration for the covenant.

Related Terms: Non-compete Agreement, Restrictive Covenant

In Morris v. Schroder Capital, Justice Pigott wrote the opinion for the Court of Appeals of New York.

In the case, Morris had left his employment as an investment manager. But his employer, Schroder Capital, had a deferred compensation plan that specified immediate discontinuance of those benefits if Morris worked for a competitor within three years after leaving his employ with Schoder. In fact, Morris joined a competitor right away. Schroder cut his benefits off and Morris sued, alleging, now, constructive discharge.

The Court used these words:

"Noncompete clauses in employment contracts are not favored and will only be enforced to the extent reasonable and necessary to protect valid business interests.

"We have recognized an exception to the general disfavor of noncompete provisions, however, in the employee choice doctrine. This exception applies in cases where an employer conditions receipt of post-employment benefits upon compliance with a restrictive covenant. The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee's liberty to earn a living. It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment.

"An essential element to the doctrine is the employer's continued willingness to employ the employee. Where the employer terminates the employment relationship without cause, his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer's ability to impose a forfeiture

"Thus, although a restrictive covenant will be enforceable without regard to reasonableness if an employee left his employer voluntarily, a court must determine whether forfeiture is reasonable if the employee was terminated involuntarily and without cause."

REFERENCES:

  • Morris v. Schroder Capital Management International, 859 NE 2d 503 (2006)

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