When can the court enforce a company’s plan that specifies what the company can do concerning awards or benefits it doles out to its employees?

If I sign a non-compete restrictive agreement with my employer and it is tied to any benefits I receive from the company will it be enforceable in court?

Author: Elliot M. Hirsch
Case Citation: IBM v. Naganayagam, 2017 WL 5633165 (S.D.N.Y. 2017)

Employee/Personnel/Employer Implicated: Vice President in the global business services division of IBM Australia.
eLesson Learned: If you claim that certain ESI information will reveal pertinent information relating to your case, you better be sure the contents of the ESI information will satisfy the court’s threshold requirement forcing the discovery of such information.
Tweet This: Don’t sign a clear, unambiguous non-compete restrictive covenant that is attached to benefits received while working for a company if you plan to want to keep those benefits and violate those terms. You’re asking for trouble.

This case is important to anyone who works for a company and is promised and receives certain benefits from their employer. IBM is one of the biggest corporations in the world. They are a billion-dollar company and one would think that an even a couple hundred thousand wouldn’t be so important to them. But guess again. This case is about a man who worked for IBM and received certain stock options worth around $112,000 and, after he left the company, was sued by IBM for the value of those stock options and IBM wants their money back. 

Mr. Naganayagam used to be employed by IBM. His position was as Vice President in the Global Business Services Division of IBM Australia. While working for IBM he was able to receive long term awards and benefits. He received Restricted Stock Units (“RSUs”), which were scheduled to vest on later dates in accordance with his continued employment with IBM. He received these benefits under the terms and conditions of IBM’s Long-Term Performance Plan (the “Plan”) and Equity Award Agreements dated June 8, 2009, June 8, 2010, June 8, 2011, and June 8, 2012 (collectively the “EAAs”). Under the plans, IBM has the capability to rescind or cancel these awards subject to certain behavior by its employees. In June of 2013, the RSUs awarded to Defendant in June of 2009 2010, 2011, and 2012 vested and were released into Defendant’s Morgan Stanley Smith Barney account. (Id.17-20.) As a result, Defendant realized gains totaling $112,000.

After getting these rewards, Mr. Naganayagam retired from IBM and joined a different company called Computer Science Corporation. Thereafter, there was serious litigation concerning these matters. IBM was adamant that CSC was a competitor of theirs and that by working for them, their former employee violated the plans that allow IBM to cancel or rescind their awards. And for this, they wanted their money back concerning the RSU’s. However, Mr. Naganayagam was arguing that IBM contained emails and a strategy plan that would show that CSC was not a competitor of theirs. IBM was unable to locate its strategy plan or simply said they didn’t even have one. And that it was unnecessary to produce them since that information would be irrelevant since the depositions of the employees of IBM, including Mr. Naganayagam, already settled the matter that CSC was a competitor.

Mr. Naganayagam was trying to make a claim for spoliation in relation to ESI, the emails between Lisa Caldwell, an employee of IBM. The court established that the applicable rule to adjudicate this matter was Federal Rule of Civil Procedure 37(e ). The court concluded that Mr. Naganayagam failed to provide the Court with any deposition testimony by Caldwell to the effect that the e-mails contained discussions of whether IBM and CSC are competitors and without such evidence, they could not grant him his motion for spoliation. They denied him the opportunity to seek the ESI information that he was requesting because they deemed it irrelevant to the claim he was making. This is a SUPER important law concerning eDiscovery documents that are not necessarily going to be produced. The rule of law that came out of from this case is that you must prove that the information is relevant to the claim your making.

The court next considered the motion for summary judgment that IBM was seeking against Mr. Naganayagam. The main issue at play was whether there was a material dispute concerning the terms of the plan that delineated what actions were permitted by IBM concerning their awards given to employees. The court concluded that, in fact, there were no material disputes concerning the terms of the plan and ruled in favor of IBM. The court ruled that the plan was specific and unambiguous regarding its language for employees working for competition.

The court found it undisputed that CSC was a competitor of IBM since even Mr. Naganayagam. testified as such. The court then noted that restrictive non-compete agreements are subject to heightened judicial scrutiny and would only be upheld under certain conditions, such as a voluntary resignation from a company. The facts here were that Mr. Naganayagam did, in fact, voluntarily resign and was offered a similar salary to his new job by IBM. So, the court decided to rule against him. The court then concluded that IBM was entitled to counsel fees since their plan contained clear language concerning this provision. 

This case goes to show you how having a good clear and direct language in your companies operating agreements and policies can protect them from potential lawsuits and unjustly enriching their employees.

Elliot M. Hirsch is 3rd year law student at Seton Hall University. He was a scholar-athlete at the CUNY Brooklyn College and traveled the world playing tennis before attending law school. Mr. Hirsch also tutored over 2500 students in the TriState New York Area. 

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