If an employee challenges the validity of a non-compete in federal court on the basis of diversity jurisdiction, will the minimum amount in controversy ($75,000) be met?
Generally, the answer is yes. The value of equitable relief - as opposed to damages - is fairly difficult to determine from the face of a complaint, but courts err on the side of giving the plaintiff the benefit of the doubt. Sometimes, the analysis is easy - as it was in a decision issued by a New York federal court. In Sarfraz v. Vohra Health Services, the non-compete barred each physician from providing wound care services for a period two years within thirty miles of Long Island.
The non-compete was sweeping in scope and potentially could keep each plaintiff out of the profession for two years. Given their base salary of $150,000, the court found that the jurisdictional amount was easily met since the value of prevailing on a declaratory relief claim exceeded the statutory minimum.
It is conceivable that for short-term covenants or those for relatively inexpensive employees, the jurisdictional analysis may yield a different outcome. For activity covenants (such as a no-hire or no-solicit clause), the question becomes a little more nuanced and a plaintiff seeking a declaration of his or her rights may need to plead more facts to set forth the basis for diversity jurisdiction. In regards to non-disclosure clauses, courts seem more inclined to retain jurisdiction. Though the intangible nature of confidential information is hard to quantify, a plaintiff easily could satisfy the jurisdictional minimum by alleging that it has invested more than $75,000 in developing, storing and protecting confidential business information.
Court: United States District Court for the Eastern District of New York
Opinion Date: 10/20/09
Cite: Sarfraz v. Vohra Health Services, PA, 2009 U.S. Dist. LEXIS 99413 (E.D.N.Y. Oct. 20, 2009)