Clueless on non-competes?

Industry execs are watching the latest cases, but have yet to get answers on whether contracts are ironclad

Nov.November 01, 2016 11:00 AM
Wendy Maitland

Wendy Maitland

How ironclad are non-compete agreements?

That question — which has been bandied about in the residential brokerage world for the past several years — has once again been thrust into the spotlight because of a pair of high-profile cases. But so far
these cases have shed little light on the issue and left brokerage heads, sales managers and agents at a loss for how to proceed when it comes to these landmine-filled contracts.

After Wendy Maitland left her job as president of sales at Town Residential in the spring, she got into an ugly legal battle with her former employer over her non-compete. But while the two parties took the case to court, they ultimately hammered out a confidential settlement that locked out prying public eyes.

Meanwhile, last month, Douglas Elliman filed a lawsuit against rival brokerage Compass and its president, Leonard Steinberg, claiming that he and colleague Herve Senequier breached their non-solicit agreements with Elliman by raiding the company’s talent pool (see related story on page 102).

That case will undoubtedly be closely watched by the industry, which has been patiently waiting for some more precedent-setting case law. “I think people are interested to see if any of these things will hold up and what it could potentially mean for them if there’s repercussions or not,” said Bess Freedman, Brown Harris Stevens’ executive president.

Terms and conditions

Industry pros say non-compete agreements — which apply only to salaried employees (like managers and other execs) rather than independent contractors (like brokers) — have become much more prevalent over the past five years as competition among firms has set off defections.

Non-compete clauses are part of  broader “restrictive covenants” that are tucked into employment agreements and designed to prevent former employees from raiding a company as they walk out the door.

These clauses — which generally range from six months to a year — can prevent former executives from working for specifically named competitors or in certain geographical markets.

Screen Shot 2016-11-01 at 10.59.05 AM

Gene Martinez

When Gene Martinez left his job as manager of the Corcoran Group’s TRData LogoTINY Soho office last year, for example, his agreement precluded him from working for his new employer, Compass, in NYC. He went to work for Compass in Miami but returned before his agreement expired. Corcoran sued to enforce the non-compete, but later settled the case with Compass.

Meanwhile, Anna Zarro just landed at Extell Development, a year after leaving Town, where she was a marketing and leasing senior vice president. Sources speculated that the employment gap was related to a one-year non-compete, though Zarro did not respond to requests for comment.

And in 2014, Town won a case against Nicole Oge, former marketing director, who violated her non-compete when she went to Elliman. Town’s lawyers referenced that decision as a precedent, arguing that non-competes are enforceable.

But other than those basics, little is publicly known about these situations.

Dirty laundry

Non-compete agreements are not without their critics.

Compass, for example, does not use non-competes — though the upstart firm has been attacked by rivals for poaching talent.

And there are deterring realities for both firms and executives considering litigation.

The most pressing for many is that litigating means going public with the private details of an employment contract — something that the parties involved often don’t want to stomach.

Maitland’s case with Town, for example, spilled details about personal finances and internal business strategies. “You really just don’t want to be dragged through the press with this stuff,” said Pam Liebman, Corcoran’s president. “It’s always better to work it out.”

Maitland’s most recent contract, from 2014, stated that she could not participate in any activities involving development, brokerage, leasing or sales in Manhattan or Brooklyn for two years after leaving Town.

In a legal filing, Maitland, who spent 10 years as a psychotherapist before getting into real estate, said high-end real estate was virtually all she knew. “It is the only way for me — a single mother of two children and the chief support of my widowed elderly mother — to earn the income necessary to provide adequately for my family and myself.”

Despite the varied opinions on non-compete agreements, there is broad consensus that the more general an agreement, the less likely it is to be enforced.

The courts have a strong aversion to upholding agreements that would hinder someone from bringing home a paycheck.

“As a general rule, the broader an employer tries to make it, the less likely it is to be enforceable,” said Stuart Berg, a real estate partner with law firm Kurzman Eisenberg Corbin & Lever.

“They’re definitely enforceable. I don’t want to give the idea that they’re not worth the paper they’re written on,” he added. “[But] the courts are very hesitant to enforce an agreement that’s going to prevent someone from earning a living.”

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