What Makes a Non-Compete Agreement Unenforceable in New York?
Do you feel trapped by a non-compete agreement? You might have more options than you think. Here’s a look at when non-competes are enforceable in New York.
Non-compete agreements are a restrictive covenant in employment agreements and contracts that limits an employee’s ability to work with competitors or start a competing business within a specific time and after leaving a job. For example, a marketing executive in New York City might find that their non-compete prohibits them from working with any competitor in New York state for two years. A software developer may be restricted from working with former clients due to a non-competition clause. These cases highlight how non-competes can limit career mobility.
The enforceability of non-competes has been actively debated recently by lawmakers, including Governor Kathy Hochul and the New York State Legislature. There are also possible changes on the horizon from the Federal Trade Commission (FTC) that could redefine non-competes across industries for everyone from independent contractors to executives.
What this article covers:
- What are non-compete agreements, and how do they work?
- Criteria for enforceability in New York state
- Options for challenging a non-compete agreement
What Is a Non-Compete Agreement?
A non-compete agreement is a provision in an employment contract that restricts an individual from competing with their employer after their employment ends. Such agreements often prohibit former employees from working with competitors, solicitation of clients, or using trade secrets for a fixed period and within a defined geographic area.
Non-competes are meant to protect a company’s legitimate business interests, such as confidential information and customer relationships, but they are being criticized for harming wages and limiting workers from pursuing new employment.
Non-compete agreements vary widely in terms and restrictions. They usually cover specific actions, including:
- Working for Competitors: Employees cannot join a competitor or start a similar business.
- Geographical Scope: Non-competes may prohibit employment within a certain distance of the former employer’s office.
- Time Limits: Non-competes often specify a fixed term, such as six months to two years.
Because of their potentially restrictive nature, non-competes have been prohibited or limited in some states, like California, North Dakota, and Oklahoma. In New York, recent discussions by the state legislature and FTC proposed rule changes could significantly impact the future of non-compete clauses.
Challenging a non-compete in New York can be complex. Courts assess several factors when determining enforceability, including whether the restriction is essential to protect business interests and if it imposes an undue hardship on the employee. With potential new restrictions and a non-compete ban on the horizon, New York professionals and businesses should consult legal advice to navigate this dynamic field effectively.
How Does a Non-Compete Work?
After an employment relationship ends, the non-compete restricts what the former employee can do, such as work for a competitor, solicit previous clients, or use trade secrets in a new role. The limitations usually last for a specific time, like one or two years, and may include geographical boundaries.
Non-compete agreements protect business interests, but they can be highly restrictive for employees. For example, low-wage earners or independent contractors may have difficulty finding new employment if they’re bound by strict non-compete clauses. New York labor law and employment contracts often include non-solicitation agreements and non-disclosure agreements with non-competes to further restrict the movement of information and clients.
Employment law requires restrictions to be specific and purposeful; otherwise, they are considered prohibited non-compete clauses that only hurt the worker. The FTC’s proposed rule could potentially void many non-compete provisions, significantly shifting the landscape for New York workers.
What Makes a Non-Compete Agreement Enforceable in New York?
In New York, courts only enforce non-compete agreements if they meet specific criteria. Essentially, the agreement must protect an employer’s legitimate business interests without creating undue hardship for the employee or harming the public. The employer has to meet the following five criteria, otherwise, they will be required to revise the agreement.
1. You Resigned or Were Fired for Cause
A non-compete is more likely to be enforced if the employee resigned or was terminated for cause. New York courts often hesitate to enforce non-competes when an employee is let go without cause, as that could unduly restrict their access to new employment opportunities.
2. It Has to Protect the Employer’s Legitimate Business Interests
A non-compete agreement must protect the employer’s legitimate interests, such as safeguarding trade secrets, confidentiality, or customer goodwill. For example, a non-compete for an executive with access to sensitive client lists is enforceable to protect trade secrets and proprietary business information.
3. It Must Not Impose an Undue Hardship on the Employee
New York State law considers whether a non-compete causes undue hardship on the employee by limiting their ability to work in their field. For example, a restriction that prevents employees from working anywhere within the state or an entire sector or industry could be considered overly restrictive and potentially unenforceable.
4. It Must Not Harm the Public
Non-compete agreements cannot harm the public by limiting access to essential services or skilled professionals. If enforcing the non-compete results in decreased competition in fields critical to public welfare, such as healthcare or technology, courts may consider the agreement void.
5. Time Period and Geographic Scope Must Be Reasonable
In New York, whether a non-compete is enforceable depends on its fixed term of service and geographic scope. If the non-compete duration is too long or the area is broad, it may be considered unreasonable and unenforceable.
Some companies use “Garden Leave,” where an employee who resigns or is terminated continues to receive pay or benefits. This can blur the lines around the fixed term of service and the non-compete’s effective dates.The wording of severance agreements can also cause confusion, so it is important to speak with an employment lawyer to make sure your rights are protected.
Schedule your non-competes consultation today.
How To Fight a Non-Compete Agreement in New York
If you think your non-compete agreement is unfair or too restrictive, you may have options to challenge it. Courts sometimes consider economic factors, like wage stagnation, when evaluating whether a non-compete agreement is reasonable. Knowing the grounds for challenging it and possible negotiation options can help if your career is limited by the agreement.
Grounds
Common grounds for challenging non-compete include:
- It is too broad in time, geography, or scope.
- It does not protect a legitimate business interest.
- It creates an undue hardship for the employee.
- It was signed under pressure or without fair compensation.
Negotiation
Negotiation can often help resolve non-compete agreement disputes. Employers may agree to revisions or drop certain terms if employees release them from liability or accept other conditions. An employment lawyer can guide you through negotiations to find a fair outcome.
Fighting a Non-Compete: Risks of Non-Compete Review
- For the Employer:
Enforcing an unreasonable non-compete can lead to lawsuits and harm a company’s reputation. Employers might have legal expenses, including attorneys’ fees, and damages if the agreement is found to unfairly restrict competition.
- For the Employee:
Challenging a non-compete can be costly and affect future employment opportunities. However, a successful challenge can remove unfair restrictions, allowing for new career options.
- What You Need to Know:
Each non-compete agreement is unique, and legal outcomes can vary widely based on industry, job role, jurisdictions, and agreement specifics. Consulting with an experienced non-compete attorney in New York can clarify your options and help you build a strategy for moving forward.
Get In Contact With a Non-Compete Lawyer Right Away
Everyone from medical professionals to sandwich franchises may be subject to non-compete agreements. If you’re considering challenging one, seeking legal advice promptly is crucial. An experienced non-compete attorney can assess your situation, explain your options, and help protect your rights.
As New York considers non-compete reform, staying informed of your legal standing and options is critical to preserving your career trajectory and financial stability.
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Robert Ottinger, Esq.
Robert Ottinger is an employment attorney who focuses on representing executives and employees in employment disputes. Before starting his firm, Robert slugged it out in courtrooms trying cases for the government. Robert served as a Deputy Attorney General for the California Department of Justice in Los Angeles and then as Assistant Attorney General for the New York Attorney General’s Office in Manhattan.
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