Historically, New York non compete agreements have been used to protect narrow and legitimate interests. For instance, a non-compete clause might limit the ability of high-level executives with access to trade secrets to use that information to a company’s disadvantage. Or a non-compete agreement might allow a company to sideline a former employee with deep customer relationships for a period of time to give the company an opportunity to retain those clients after the employee’s departure.
Over the past decade, however, the use of New York non compete agreements has expanded exponentially, such that they are standard procedure in almost every industry. See the Market Watch article (More Firm’s Requiring Non-Compete Agreements), Wall Street Journal article (Litigation Over Non complete Clauses Is Rising). Despite this expansion, however, the enforceability of broad or abusive New York non compete agreements remains in question, as New York courts are more skeptical of non-compete agreements than courts in almost any other jurisdiction.
As such, it is crucial for both companies and employees to remain aware of the broad principles of law governing New York non compete agreements. Of course, companies must balance their need for broad protections with the potential that their agreements will be found to be unenforceable. Employees, on the other hand, may use their awareness of the legal principles governing New York non compete agreements as leverage in negotiations prior to signing a contract, or perhaps as a way out of an agreement if the relationship has broken down.
New York Non Compete Agreements May Only Protect a Company’s Legitimate Business Interests
A New York non compete agreement must be justified by a company’s legitimate business interests. Specifically, there are two interests that courts in New York recognize as “legitimate”: a non-compete agreement is valid only if it protects trade secrets or customer or client relationships. Unfortunately non-compete agreements are often abused for other, illegitimate purposes, such as preventing employees from resigning without penalty. To the extent a company attempts to enforce its non-compete in this way, a court may find it to be unenforceable.
New York Non Compete Agreements Cannot be Over-Broad
Not only are New York non compete agreements restricted to those narrow interests, they must be narrowly tailored so that only those interests are protected. Specifically, non-compete agreements must be reasonably limited in time, geographic scope, and in the definition of competitive activity. Regarding the geographic scope; an agreement can only prohibit competitive activity in an area that the company operates in. Traditionally, these limitations were quite narrow, but with increasing numbers of companies doing business solely online, national or even global non-competes are becoming more common. In such cases, however, the definition of competitive activity must be carefully circumscribed. For instance, an employer only engages in a certain type of business, the non-compete agreement might be invalidated or narrowed if it prohibits the employee from engaging in other lines of work. Finally, with respect to temporal limitations, non-compete agreements are generally (though not always) acceptable if they are limited to one year or less, but generally should not exceed that time.
New York Non Compete Agreements May Be Unenforceable If the Employee Was Terminated Without Cause or If the Employer Breached The Contract
In New York, courts often will not enforce a non-compete agreement against and employee who was terminated without cause. The concept is simple—the enforceability of non-compete agreements depends on a mutuality of benefit. In other words, a company that is no longer willing to employ an employee cannot prevent that employee from working anywhere else. The law on this subject is developing, however, and we will cover this issue in more detail in a later post.
Along the same lines, a company cannot enforce an non-compete agreement that is contained in a broader contract that the company has breached itself. As such, employees may be able to void a non-compete agreement entirely if they can prove that their employer breached another part of the employment contract, by, for instance failing to pay full compensation or provide required notice before a termination.
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