## Facts

- BDO Seidman, a national accounting firm, employed Jeffrey Hirshberg in its Buffalo office beginning in 1984; he became a manager in 1989.
- As a condition of promotion, Hirshberg signed a Manager’s Agreement recognizing a fiduciary relationship based on access to firm information and client relationships.
- The agreement included an 18-month post-termination “reimbursement” clause requiring Hirshberg to pay BDO 1.5 times the prior year’s fees for any former client of BDO’s Buffalo office that he served after leaving, payable over five years.
- Hirshberg resigned in October 1993.
- BDO sued in January 1995, identifying 100 former Buffalo-office clients allegedly lost to Hirshberg, with about $138,000 in billings in the last year of his employment.
- Hirshberg disputed that he served some listed clients and contended that many were clients he had brought to the firm or clients for whom he was not the primary BDO representative.
- BDO conceded the clause, by its terms, applied even to Buffalo-office clients Hirshberg never serviced and clients he originally brought to BDO.

## Issues

1. Whether the reimbursement clause functioned as a restrictive covenant subject to New York’s reasonableness test, rather than a mere liquidated-damages provision.
2. Whether the clause was unenforceable because it extended to all Buffalo-office clients, including those never serviced by Hirshberg or independently brought by him.
3. Whether, and to what extent, an overbroad post-employment restraint may be partially enforced to protect only the employer’s legitimate interests.

## Decision

- The Court of Appeals held the reimbursement clause operated as a restrictive covenant because it imposed a substantial financial disincentive on serving former firm clients.
- The clause was overbroad and unenforceable insofar as it applied to:
  - clients Hirshberg never personally serviced while employed by BDO, and
  - clients whose relationship with BDO was not attributable to the firm’s investment (including clients Hirshberg independently brought to the firm).
- The Court partially enforced the clause to the limited extent necessary to protect BDO’s legitimate interest in firm-developed client relationships.
- The clause could be enforced only against clients of the Buffalo office whom Hirshberg personally serviced at BDO and whose patronage was attributable to BDO’s efforts and resources.
- The Court modified the lower courts’ orders that had refused enforcement altogether and remitted for further proceedings to identify covered clients and determine any recovery.

## Legal Principles

- A post-employment restraint is enforceable only if reasonable: no broader than necessary to protect legitimate employer interests, not unduly harsh to the employee, and not harmful to the public.
- Legitimate protectable interests include trade secrets or confidential information, unique or extraordinary services, and client relationships created or maintained through the employer’s efforts and expenditures.
- Protection from ordinary competition is not a legitimate employer interest; the law protects only against unfair competition tied to the employer’s own investment.
- A clause framed as “reimbursement” or “liquidated damages” may be treated as a restrictive covenant when its practical effect is to restrain competition.
- New York permits partial enforcement of overbroad restrictive covenants, severing unreasonable applications and enforcing only a reasonable core where equity supports doing so.
- In assessing partial enforcement, courts consider the degree of overbreadth and equitable factors such as employer overreaching and relative bargaining power.
- An 18-month duration may be reasonable in professional services; overbreadth may arise from the scope of clients covered rather than the time limit.

## Conclusion

The Court of Appeals rejected total invalidation of BDO’s post-employment reimbursement clause but limited enforcement to clients Hirshberg personally serviced through BDO’s firm-developed relationships, holding that restraints cannot extend to clients unrelated to the employer’s investment or to clients the employee independently brought to the firm.


BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (N.Y. 1999)