Tortious Interference with Contract in New York: Elements & Defenses

Elements

What is tortious interference? Tortious interference is a common law tort that most often arises in commercial litigation when one party damages another party’s contractual or business relationship with others. Most jurisdictions recognize separate claims for tortious interference with contract and tortious interference with business relationships.

In New York State the standard for tortious interference with contract is fairly straight forward. The following four elements must be met in order for a court to find that there was tortious interference with contract:

1. the existence of a valid contract between plaintiff and a third party;
2. the defendant's knowledge of that contract;
3. the defendant's intentional procuring of the breach, and
4. damages.”[1]

The Existence of a Valid Contract Between Plaintiff and a Third Party

The first element, being the simplest, is the existence of a valid contract between the plaintiff and a third party. In this case, a third party is any party that is neither the plaintiff nor defendant. Contrary to what you may believe, a valid contract does not need to be written out and could be an oral agreement between parties. For purposes of this example, a contract can be a written employment contract between employer and employee outlining things such as payment, but also includes a valid restrictive covenant, prohibiting the employee from working for a competitor after the termination of her employment.

The Defendant's Knowledge of that Contract

The second element, being the defendant’s knowledge of that contract, is also fairly straightforward. In such a case, for a defendant to have tortiously interfered with a contract, they must have knowledge that the contract actually exists. Whether it be oral or written, the defendant must have actual knowledge of the contract, they cannot merely interfere with the contract by mistake. Continuing with our example, here the defendant is a competitor of the employer, aware of the employment contract between the employer and the employee.

The Defendant's Intentional Procuring of the Breach

The third element, being the defendant’s intentional procuring of the breach, is generally the hardest element to prove in a court of law. This means that the defendant committed some act, purposely, to force a party to breach the contract. Following our growing example, in this case, the defendant/competitor told the employee that they will be given more favorable working conditions and pay, and convincing the employee that if they work for the them, they will not face any legal action from the former employer.[2] In this case, the defendant induced and encouraged the employee to breach the contract and specifically the restrictive covenant. New York Courts have found that a plaintiff may recover for tortious interference with contract in cases where a new employer induces an employee to breach a contract.[3] The standard here is the “but for” test, meaning that, but for the competitor’s interference and inducement, the employee would likely have not breached the restrictive covenant.[4] One other way Breach can be induced is by making performance of a contract impossible.[5]

Damages

The fourth and final element needed is damages. Damages are the award that a plaintiff requests from the court in order to satisfy the harm or injury done to them. For tortious interference with contract, generally, the damages would be the just compensation the plaintiff would earn, so long as he performed the contract without interference from the plaintiff. In our example, the damages awarded to the plaintiff would likely be value lost from the employee leaving to work for the direct competitor.

Defenses

Perhaps the strongest defense against tortious interference with a contract is the defense that the actions of the defense were justified. For an action to be justified, the defendant must show that their actions were taken in their own legitimate economic self-interest.[6] The New York Court of Appeals found that,

The existence of competition may often be relevant, since it provides an obvious motive for defendant's interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else's economic relations. Where the parties are not competitors, there may be a stronger case that the defendant's interference with the plaintiff's relationships was motivated by spite. But as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace.[7]

This can be distinguished from our example above (based on a real New York State case) as, in our example, the breach was induced with a specific promise to protect against litigation. In Carvel Corp. there was no promise of anything, and the employee was merely lured away from the original employer due to favorable working conditions and pay. In order for there to be tortious interference, there must be “direct[ed] activities towards the third party.”[8] If no such directed activities existed, the defendant may have a valid defense against the plaintiffs’ claims.

Other ways to defeat the claim of tortious interference with contract is to challenge the remaining three elements of the claim. This would likely be much more difficult, as a claim for tortious interference is more often than not brought forward if such elements could not be satisfied.

For help navigating restrictive covenants and drafting employment agreements, contact KI Legal’s knowledgeable labor & employment attorneys by calling (212) 404-8644 or emailing info@kilegal.com. We are here to help protect your business and interests.

For help navigating restrictive covenants and drafting employment agreements, contact KI Legal’s knowledgeable labor & employment attorneys by calling (212) 404-8644 or emailing info@kilegal.com.

[1] Foster v. Churchill, 87 N.Y.2d 744, 749–50, 665 N.E.2d 153, 156 (1996).