into by a party defendant's union. See John Hancock Mut. Life Ins. Co. v. Schwertmann, 627 F. Supp. 143 (E.D. Mo., 1985).
Plaintiff argues that federal law and precedent should apply relying on the decisions of the Supreme Court as well as other federal courts. Further, plaintiff cites Federal District Court cases which have analyzed the clause at issue here and have ruled in favor of John Hancock. Defendant argues that the federal courts have never addressed the issue of Covenants Not to Compete. It is Austin's contention that because no body of federal law exists regarding this subject, New York State law should apply. According to defendant, New York State law prohibits agreements such as the Covenant in question here.
1. Federal Law and Section 301(a)
The Supreme Court dealt with Section 301(a) in Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 1 L. Ed. 2d 972, 77 S. Ct. 912 (1957). In that case, the Supreme Court held that in § 301 cases, the common law to be applied is "federal law, which the courts must fashion from the policy of our national labor laws. . . . But state law, if compatible with the purpose of Section 301 may be resorted to in order to find the rule that will best effectuate the federal policy." Id. at 456. It was the aim of the Court to establish a uniform body of law that would not be subject to the variations of state law. This idea was supported further when the Supreme Court stated that in dealing with cases involving collective bargaining agreements, "incompatible doctrines of local law must give way to principles of federal labor law." Teamsters Local v. Lucas Flour Co., 369 U.S. 95, 103, 7 L. Ed. 2d 593, 82 S. Ct. 571 (1962). The Court further discussed the rationale for the desire for uniformity in the interpretation of labor contracts: "The possibility that individual contract terms might have different meanings under state and federal law would inevitably exert a disruptive influence upon both the negotiation and administration of collective agreements." Id.
2. Federal Law and Covenants Not to Compete
The next question is whether or not a body of federal law exists on the specific subject of Covenants Not to Compete. Although John Hancock contends that federal common law does exist, the cases provided and subsequent research cannot support this argument. Federal courts have considered restrictive covenants in diversity cases where the court was acting as a state court, including a New York State court.
However, after thorough research, the court has not discovered cases which address Covenants Not to Compete within Collective Bargaining Agreements governed by § 301(a) of the Labor Management Relations Act, 29 U.S.C. § 185. All of the cases cited by John Hancock involve decisions regarding preliminary injunctions. None of these cases cite relevant case law or statutes.
Even though there appears to be no body of federal law on the subject, this court is guided by the principles in Lucas Flour. In essence, the main concern of the Supreme Court was to develop, if one did not already exist, federal common law that could be applied uniformly versus a body of law that varied from state to state. Lucas Flour, 369 U.S. at 102. That leaves this court in the position of establishing federal common law that can be applied not only in New York, but other states as well. In order to accomplish this, the court is guided by relevant New York law.
D. New York Law on Covenants Not to Compete
When analyzing a restrictive covenant, New York courts examine the facts and circumstances surrounding the particular case. "'Courts must respond to each case as it presents itself, and often times . . . must resolve seemingly divergent considerations of public policy.'" Greenwich Co. v. Barrie House, 91 A.D.2d 398, 400-01, 459 N.Y.S.2d 454 (2d Dep't 1983) (citing Matter of Sprinzen, 46 N.Y.2d 623, 628-29, 415 N.Y.S.2d 974, 389 N.E.2d 456 (1979)). The courts first consider the "reasonableness" of the restrictive covenant as applied to the facts of the case being considered. Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 307, 386 N.Y.S.2d 677, 353 N.E.2d 590 (1976). This reasonableness test will vary depending upon the type of restrictive covenant in question. Id. "For example, where a business is sold, anticompetition covenants will be enforceable if reasonable in time, scope and extent. . . . However, where an anticompetition covenant given by an employee to his employer is involved, a stricter standard of reasonableness will be applied." Id.
Rigid employer-employee restrictive covenants are generally unenforceable in New York. "It is well established that restrictive covenants that tend to prevent an employee from pursuing a similar vocation upon termination or retirement from employment are disfavored by the law." Briskin v. All Seasons Servs., Inc., 206 A.D.2d 906, 906, 615 N.Y.S.2d 166 (4th Dep't 1994). Furthermore, covenants which are so broad as to "baldly restrain competition" will not be enforced. Columbia Ribbon v. A-1-A Corp., 42 N.Y.2d 496, 499, 398 N.Y.S.2d 1004, 369 N.E.2d 4 (1977).
However, it has been recognized that a balance must be met. This balance is between protecting an individual's livelihood versus protecting a company's interest against competition by former employees who utilize private information gathered from their prior position. Reed, 40 N.Y.2d at 308. "Of course, the courts must also recognize the legitimate interest an employer has in safeguarding that which has made his business successful and to protect himself against deliberate surreptitious commercial piracy." Id.
Reed sets forth a two part test. First, a Covenant Not to Compete that limits a former employee's ability to work in the same occupation will be enforced only if "it is reasonable in time and area, necessary to protect the employer's legitimate interest, not harmful to the general public and not unreasonably burdensome to the employee." Id. at 307. Second, even if the covenant meets the first test, it will only be enforced "to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information." Id. at 308 (citations omitted); See also Purchasing Assoc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963) (A restrictive covenant will be enforced only to the "extent necessary to prevent the employee's use or disclosure of his former employer's trade secrets, processes or formulae or his solicitation of, or disclosure of any information concerning the other's customers.") (citations omitted); Briskin, 206 A.D.2d at 906; Business Intelligence Servs., Inc. v. Hudson, 580 F. Supp. 1068, 1071 (S.D.N.Y. 1984).
E. The Above Principles as Applied to the Collective Bargaining Agreement
Defendant would have this court believe that the Covenant Not to Compete in question is of the sort that would be unenforceable under New York law. This court cannot agree. The Collective Bargaining Agreement contains an extremely lenient restrictive covenant that is enforceable under Reed.
Article XVI of the Agreement is an ordinary provision which merely requires the return of records and reports held by former employees. Paragraph 1 of Article XXIV prevents a former employee from competing by utilizing the records and reports of the company which has developed them.
Thus, this paragraph is not a "restrictive covenant that tend[s] to prevent an employee from pursuing a similar vocation . . . ." Briskin, 206 A.D.2d at 906. Paragraph 3 of Article XXIV does not seek to prohibit the former employee from selling insurance.
In fact, the paragraph doesn't even forbid former employees from soliciting the business of former clients. Rather, its sole aim is to prevent former employees from encouraging these customers to cancel, lapse, or fail to renew their existing John Hancock policies. This is hardly a rigid covenant of the sort that the New York courts disdain. In this regard, it is perfectly "reasonable" under Reed. See 40 N.Y.2d at 308. Other courts I have found more restrictive schemes to be reasonable under New York law. In Ecolab Inc. v. K.P. Laundry Machin., 656 F. Supp. 894, 899 (S.D.N.Y. 1987), the court found that a one year ban on any solicitation of former clients was acceptable because a wealth of potential customers existed. In Bausch & Lomb, Inc v. Smith, 630 F. Supp. 262, 266 (W.D.N.Y 1986), a two year ban from seeking employment with a competitor that deals with similar products to which the employee was exposed was found to be reasonable.
Next, the Covenant only applies to the geographical area in which that former employee was located and it expires after two years. In that regard, it is reasonably limited in geographical scope and time. See Reed, 40 N.Y.2d at 308. Further, it does not unduly burden the former employee since that person is permitted to find new insurance customers and even sell different policies to former clients. Id. Moreover, it is not harmful to the public. Id. All customers are allowed to buy insurance from whomever they please, including from former John Hancock representatives. These clients could even replace their existing John Hancock policies assuming they do so on their on their own initiative. Id. Thus, the first part of the Reed test is met.
The second prong under Reed which requires the protection of the employer's "trade secrets or confidential customer information" is also satisfied. Id. Austin argues that the information she may have relied upon is not a "trade secret." This, she says, is because the names of the customers whom she contacted are readily available in the phone book. This may be true. Lists containing only customer names do not constitute a trade secret or "confidential customer information" in the insurance field. Reidman Agency, Inc. v. Musnicki, 79 A.D.2d 1094, 1094, 435 N.Y.S.2d 837 (4th Dep't 1981). However, the detailed information needed to provide insurance to these former customers is not in the phone book. Such detailed information was available to Austin in the confidential customer lists and papers that were not returned to John Hancock. Although this information may not rise to the level of a "trade secret," it certainly does constitute "confidential customer information." See Reed, 40 N.Y.2d at 308. The papers and records in question were not mere customer lists. In addition to customer names, these papers contained information involving customer coverage, premium amounts, cash values, and loans against existing policies. (Neal F. Smith Aff.) This rises to the level of "confidential customer information" under Reed. Id.; see Carpenter & Hughes v. De Joseph, 10 N.Y.2d 925, 926, 224 N.Y.S.2d 9, 179 N.E.2d 854 (1961); Lepel High Frequency Lab., Inc. v. Capita, 278 N.Y. 661, 16 N.E.2d 392 (1938). Therefore, the second prong of the test is also fulfilled.
Austin attempts to analogize her case with certain New York Appellate Division cases. The court remains unconvinced. Levine v. Bochner, 132 A.D.2d 532, 517 N.Y.S.2d 270 (2d Dep't 1987), involved an insurance salesman who was not accused of keeping the records of his former employer. Rather, he claimed to have memorized the names and detailed insurance needs of the 26 customers in question. Id. at 615-16. In the case at bar, there is a factual question remaining as to whether or not Austin relied upon the John Hancock records that contained confidential customer information. Cool Insuring Agency v. Rogers, 125 A.D.2d 758, 509 N.Y.S.2d 180 (3d Dep't 1986) was an appeal against a temporary injunction. The case involved several restrictive covenants that I were much more strict than those in the case at bar, and there was no issue surrounding the improper use of the former employer's confidential customer information. Id. at 181-82.
Issues of fact do remain. First, did Austin retain the records of John Hancock in violation of Article XXIV(1)? Second, did Austin contact former clients and encourage them to lapse, cancel, or fail to renew existing John Hancock policies in violation Article XXIV(3)? Third, did Austin's actions constitute a breach of contract and/or tortious interference with John Hancock's business? Finally, if Austin is found to have violated XXIV(1),(3), breached the contract, and/or tortiously interfered with John Hancock's business, what, if any, damages were suffered?
WHEREFORE, it is
1. New York law is applicable;
2. The Covenant is enforceable;
3. Defendant's motion for summary judgment is DENIED; and
4. The trial of this action shall commence on Monday, March 11, 1996, at 10:00 a.m., preceded by a final pretrial conference at 9:30 a.m. at the United States Court House in Utica, New York. The parties are hereby directed to file, on or before March 4, 1996, proposed findings of fact and conclusions of law, exhibit lists, stipulations of material facts not in dispute, and witness lists with a brief statement as to what each witness will testify.
David N. Hurd
United States Magistrate Judge
Dated: February 8, 1996
Utica, New York.