The employment contract of an accountant generally contains certain covenants against competition. The courts may or may not enforce these covenants depending on the extent to which it constitutes a restraint of trade and on the statutes and regulations of the particular jurisdiction.
The following rule is to be applied in determining whether a covenant is a reasonable restraint on the profession of public accounting[i]:
- The covenant must be limited in operation either as to time or place;
- The covenant must be based on some good consideration;
- The covenant must afford a reasonable protection and not impose an unreasonable burden upon the employer, the employee or the public.
Partial enforcement of a restrictive covenant contained in an accountant’s employment agreement with an accounting firm can be warranted[ii]:
- If the covenant is wider in certain aspects,
- If the covenant will not work an undue hardship on the accountant
- If the covenant injures the public interest if the wider provisions of the covenant are struck.
In Wiz Technology, Inc. v. Coopers & Lybrand LLP, 106 Cal. App. 4th 1 (Cal. App. 2d Dist. 2003), a computer software company brought an action against an auditor alleging breach of written, oral, and implied contracts. The auditor completed an audit for the corporation for one year. The auditor resigned and refused to conduct next year’s audit discovering that the company failed to perform its agreement to replace its securities attorney. The court held that the resignation of the auditor was for good cause, since the company failed to satisfy the condition that was the main prerequisite to the parties’ contract. Therefore, it is reasonable and permissible for an auditor to resign for good cause.
[i] Nat’l Flood Servs. v. Torrent Techs., Inc., 2006 U.S. Dist. LEXIS 39290 (W.D. Wash. June 13, 2006)
[ii] Bdo Seidman v. Hirshberg, 93 N.Y.2d 382 (N.Y. 1999)