Cantor Defeats Ex-Partners With Ruling on Noncompete Pacts (2)

Cantor Fitzgerald LP properly denied $9 million to a half-dozen former partners under non-compete agreements, the Delaware Supreme Court ruled in a decision likely to upend several other lawsuits.

New York-based Cantor’s non-compete provisions weren’t overly broad, the state’s highest court ruled Monday, overturning a judge who last year invalidated those terms. Delaware Chancery Court Judge Morgan Zurn’s decision finding Cantor’s non-compete agreements applied to an overly expansive range of “competitive activity” had since been cited in other suits by former partners.

In a 36-page opinion by Justice Gary Traynor, the state supreme court said Zurn had “erred,” and that Cantor’s restrictions were legally valid as written. When a partner moves to a competing firm, Cantor “need not confer the deferred benefit on the former partner, who has agreed to forfeit that benefit,” Traynor wrote.

The supreme court sent the case back to Zurn, who could still rule against Cantor by finding that the specific plaintiffs were not competing with the firm.

The ruling is nonetheless a setback for ex-partners who’ve accused Cantor Chairman Howard Lutnick of wielding non-competes to deny payments to departing partners who weren’t actually competing with the firm. Monday’s ruling came in a suit first filed in 2014 by a group led by Jason Boyer and Brad Ainslie, two former Hong Kong partners who claimed they were denied promised payments after they left to join Reorient Group Ltd., a Chinese bank.

Lawyers for Boyer and Ainslie didn’t immediately respond to a request for comment.

Non-competes have long been controversial, and the decision is likely to more broadly reverberate in the world of employment law. Many companies and partnerships are legally based in Delaware, the corporate home to nearly 70% of Fortune 500 companies. Business law groups had urged the court to throw out Zurn’s ruling, saying it would “wreak havoc” with restrictive covenants routinely included in work and partnership agreements.

The US Federal Trade Commission has proposed a new rule that would ban non-compete clauses in US employment contracts. Agreements with existing non-compete provisions would be voided if the rule is approved. A vote on the rule is expected later this year.

In her ruling last year, Zurn invalidated portions of Cantor’s partnership agreement on the grounds that its covenants unfairly limited career prospects for departing partners. Traynor and the other state supreme court justices reached the opposite conclusion, finding the agreement “does not restrict competition or a former partner’s ability to work.”

Another group of ex-partners sued Cantor in March, a few months after Zurn’s ruling, claiming the non-compete restrictions were used to withhold at least $10 million in bonuses and partnership shares from them. That suit seeks to represent a broader group of plaintiffs.

In September, a former Cantor trader similarly claimed the firm wrongly denied him $17 million by invoking non-competes.

Charles Elson, a retired University of Delaware professor who who once ran the school’s Weinberg Center for Corporate Governance, said Monday’s ruling boosted non-competes as a legitimate means for firms to try to retain valuable employees.

“These agreements traditionally are negotiated by sophisticated parties for high-dollar jobs,” Elson said. “If someone doesn’t like the restrictions on getting their equity if they leave for a competitor, they are free not to take that job.”

The case is Cantor Fitzgerald v. Ainslie, No. 162, 2023, Delaware Supreme Court (Dover).

(Updates with outside comment, background.)

--With assistance from Michael Leonard and Jennifer Kay.

To contact the reporter on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story:
Peter Jeffrey at pjeffrey@bloomberg.net

Anthony Lin, Peter Blumberg

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