For Whom the Employment Agreement Tolls: New York State Appellate Court Applies Equitable Tolling Doctrine In Non-Compete Dispute

An important procedural issue that often arises in a non-compete dispute is the idea of equitable tolling. This doctrine essentially allows a court to toll, or stay, the time remaining on a non-compete agreement during the period in which the employee is in breach. Equitable tolling, however, is not always available, and the remedy is highly dependent on what state’s law governs the agreement. A New York Appellate Court recently upheld the doctrine where the agreement expressly provided for equitable tolling.

In Delta Enterprise Corp. v. Cohen, Delta Enterprise Corp. manufactures and sells furniture and other products for infants, toddlers and children. Its longtime employee, Ralph Cohen was the co-head of the Toddler Furniture Division when he left the company in early 2010. Delta alleged that Mr. Cohen misappropriated confidential information from Delta, and started a competing business while he was still employed with Delta in violation of a two year non-compete and non-solicit agreement.

Delta sued Mr. Cohen nearly a year later after he left Delta and obtained both temporary and preliminary injunctive relief from the trial court prohibiting him from, among other things, engaging "in business with any of the factories with which Delta conducted business" and "interfering with or disrupting any relations between Delta and any of its customers, licensors, employees or vendors…." for two years after the end of his employment.

Although successful in the lower court, Delta appealed the decision arguing that the tolling provision in its employment agreement should be enforced from any period in which Mr. Cohen was in violation of the employment agreement and not just from the end of his employment. The New York Appellate Division (First Department) agreed and modified the preliminary injunction to extend two years from the date of issuance of the temporary restraining order or resolution at trial, whichever is earlier.