Carolina Herrera filed suit against rival design house Oscar de la Renta in New York state court earlier this week in an attempt to enforce a six-month long non-compete provision in the contract of the house’s former senior designer, Laura Kim, who is also named in the lawsuit. According to a plan set in motion by Herrera's chief executive officer Francois Kress, Ms. Kim, who joined the Carolina Herrera team in October 2015, was slated to begin her transition to replace the house’s founder - a $1 million dollar per year-paying job (with a potential $300,000 bonus) - beginning in late February 2016, something that was unknown to Herrera, 77.
Kim, who founded the New York-based brand, Monse, alongside fellow designer Fernando Garcia, ultimately resigned from her role at Carolina Herrera on July 8 and as of early September, Kim and Garcia announced that they were joining Oscar de la Renta as the house’s creative directors. Kim had previously worked under the late Oscar de la Renta, himself, as a studio director for 12 years. Garcia spent six years there, as well, ultimately leaving with the title of senior designer.
According to Herrera’s complaint, Kress sent Kim a letter shortly after the news of her and Garcia's appointment at Oscar de la Renta to notify her of the six-month non-compete agreement that was included in her contract with Carolina Herrera, which was slated to last until January. The employment agreement required that Kim give Herrera three months’ notice when she intended to resign and stipulated that the company could “at its discretion” elect to exercise a six-month non-compete provision.
The lawsuit accuses Kim of breach of contract, stating that she breached the non-compete clause explicit in her contract with the brand when she joined the team at de la Renta. The complaint also asserts a claim of Tortious Interference with Contractual Relations against de la Renta for allegedly luring Kim away from Herrera.
In terms of the latter charge, Herrera alleges in its complaint: "[Oscar de la Renta] was aware of Kim’s non-competition obligations to Herrera prior to and at the time of entering into an agreement to employ Kim in duties and responsibilities in a business directly competitive with the business in which Kim had been engaged for Herrera. Whether or not [Oscar de la Renta] was aware of Kim’s non-competition obligations to Herrera prior to the time of entering into an agreement to employ Kim as aforementioned, Herrera unambiguously informed [Oscar de la Renta] promptly upon Kim’s departure from Herrera of Kim’s contractually binding post- employment obligations to Herrera and its view that Kim’s employment by [Oscar de la Renta] in the six-month period following Kim’s departure from Herrera was and would be in violation of Kim’s post- employment obligations to Herrera."
Moreover, Herrera claims, "[Oscar de la Renta] has, with full knowledge, interfered with business relations existing between Herrera and Kim, with the purpose of harming Herrera and by means that are dishonest, unfair or improper."
Non-Compete Provisions: When Do They Apply?
For the uninitiated, non-compete clauses are common contractual provisions entered into between two parties either upon contract signing or at the end of a business relationship, in which one party agrees not to compete with the other for a set period of time.
Such contractual provisions are particularly relevant in fashion, as creative directors' tenures continue to shrink and individuals routinely swap seats in terms of the creative and executive roles at the industry's most celebrated brands.
Given the somewhat limited protections offered to garments and accessories in the U.S., such clauses could serve as more than merely a way for brands to ensure that their top talent does not switch to a competitor; non-competes, in a way, serve to protect brands' valuable designs from being copied, particularly given how easily it is for garments and accessories to be replicated. Fashion, after all, does not require the millions of dollars and lengthy timelines associated with innovation in the technology space, for instance. A design may be taken to a new brand and replicated in a matter of days.
Kim’s lawyers argued that the non-complete clause was unenforceable, alleging that she was pushed out of the company due to Ms. Herrera's unwillingness to let go of the reigns. According to Kim's counsel, “Ms. Herrera intended to run [Carolina Herrera] as if she were the Creative Director. While Laura was supposed to be reporting to Francois Kress, Carolina Herrera frequently took charge, without objection from Mr. Kress."
A Bitter Rivalry
A letter filed with the lawsuit from Herrera’s legal team at Holland & Knight said the non-compete agreement was extremely focused in that, “Carolina Herrera has no objection to Ms. Kim working for any fashion house other than Oscar de la Renta, Carolina Herrera’s direct competitor.” The two design houses are bitter rivals. According to WWD, "While Herrera and the late de la Renta were personal friends, there has long been a business rivalry between the two fashion houses. Herrera’s is much larger, approaching $1 billion based on the successful fragrances developed by her parent company Puig, although de la Renta has a more recognized apparel and accessories business."
The terms of non-compete agreements tend to vary quite a bit depending on the specific contract terms at play, but it is worth noting that New York state law holds that non-compete agreements may only be enforced if the employee at issue has resigned or is terminated for cause.
On Wednesday, the court sided with Herrera. According to a statement from the house, as provided to WWD: “Carolina Herrera is pleased the court today granted a temporary restraining order that upholds the non-compete agreement we signed with our former senior designer. As the court ruled, the non-compete agreement was fair and plainly worded. At all times, Carolina Herrera was faithful to the letter and spirit of our agreement, and we will continue to ethically and forcefully protect our business interests. Our focus remains on continuing to introduce new collections that embody the spirit of timeless elegance and refinement for which Carolina Herrera is known.”
The design duo were slated to show their first collection for Oscar de la Renta for Fall/Winter 2017 in February. It is unclear at this time how long the court's "temporary" non-compete clause will last - Herrera sought to bar Kim from working at de la Renta until April 2017.
UPDATE (12/23/16): As of Friday, New York State judge Jeffrey Oing lifted the previously implemented preliminary injunction that barred Kim from working at Oscar de la Renta given her non-compete agreement with Carolina Herrera.
According to a statement from Oscar de la Renta, as provided to WWD: “We are pleased with the court’s decision today to reverse the temporary restraining order that prevented Laura Kim from returning to our company where she worked for over 12 years before being recruited by Carolina Herrera. We look forward to returning on January 10, 2017, to fully brief the court on the non-compete matter and to more fully answer the claims in the lawsuit brought by Mrs. Herrera and her team.”