Post v. Merrill Lynch, Pierce, Fenner & Smith – Case Brief Summary (New York)

In Post v. Merrill Lynch, Pierce, Fenner & Smith, (48 NY2d 84, 397 N.E.2d 358, 421 N.Y.S.2d 847 [1979]), the Court of Appeals invalidated a restrictive covenant providing for a forfeiture of the employee's pension rights if an employee directly or indirectly competed with Merrill Lynch.

The Court of Appeals set forth an exception to the employee choice doctrine.

In that case, two employees were terminated by Merrill Lynch, without cause, and went to work for a competitor. At the time of their termination, the employees had acquired certain pension rights.

The pension plan provided, however, that if an employee went to work for a competitor, he would forfeit his pension rights.

In invalidating the forfeiture clause, the Court stated that "where the employer terminates the employment relationship without cause . . . his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer's ability to impose a forfeiture" (48 NY2d at 89; see also Morris v. Schroder Capital Mgmt. Int'l, 7 NY3d 616 supra; Scott v. Beth Israel Med. Ctr., Inc., 41 AD3d 222, 838 N.Y.S.2d 521 [1st Dept 2007]).

In Post, the Court also noted that "[a]n employer should not be permitted to use offensively an anticompetition clause coupled with a forfeiture provision to economically cripple a former employee. . . (48 NY2d at 89).