New York Non-Compete Agreements
Non-compete agreements can have devastating effects on your livelihood by impeding job prospects within your industry. These agreements, once reserved for high-level executives, have now made their way to all ranks of employees. While New York courts generally disfavor non-competes, these agreements can be enforced and employees should take them seriously. If you are bound by a non-compete agreement or considering entering into one, there are many factors you should consider including ways to invalidate these agreements. Contact our employment lawyers for a Review & Consultation to learn more about your options.
What is a non-compete agreement?
A non-compete agreement is a contract between a company and employee that prevents the employee from working for a competitor for a specified period. These agreements typically present as clauses in employment or separation agreements and can be signed before or during employment.
While non-compete agreements were once limited to high-level executives, companies now use these agreements with all levels of employees to protect their business interests. For an in-depth discussion on non-compete agreements, see New York Non-Compete Agreements: The Ultimate Guide for Executives.
Why Employers Use Non-Compete Agreements
Employers use non-compete agreements for a variety of reasons:
- protection of trade secrets, intellectual property, or confidential information (e.g., financial plans or marketing strategies);
- protecting investments in highly specialized training for employees;
- protecting relationships and goodwill with customers; and
- limiting an employee’s ability to work for a competitor.
Are Non-Compete Agreements Enforceable?
New York courts disfavor non-compete agreements and The New York Attorney General recognizes the importance of limiting them. However, non-competes can be enforced, and the evaluation of these disputes is highly fact-specific and conducted on a case-by-case basis.
Legal Standard to Evaluate New York Non-Compete Agreements
To enforce a non-compete agreement, an employer must overcome a presumption of unenforceability and demonstrate that the agreement is reasonable by meeting three factors:
- The agreement must be no greater than necessary to protect an employer’s legitimate interests. In New York, the only legitimate interests are: (1) to prevent disclosure of trade secrets or confidential information, or (2) where an employee’s services are unique or extraordinary.
- The agreement does not impose an undue hardship on the employee.
- The agreement is not injurious to the public.
Furthermore, New York non-compete agreements must be narrowly tailored and reasonably limited in time, geographic scope, and how it defines competitive activity.
Blue Pencil Rule
New York courts may “blue pencil” an overbroad non-compete agreement to make it enforceable, but courts are not required to and, can decline to enforce it. For example, a court can modify an agreement by reducing its duration or geographic scope. Some non-compete agreements have blue pencil provisions expressly providing that both parties intend the agreement to be enforceable to the maximum extent allowable by law and, if deemed overbroad, courts should blue pencil the agreement to make it enforceable.
Consequences of Violating a Non-Compete Agreement
Violating a non-compete agreement can have serious consequences. An employer may sue the employee for injunctive relief to prevent the employee from working for a competitor. An employer may also sue for monetary damages, which is often measured in terms of lost profits.
If you work for a company that has a history of not enforcing non-compete agreements, do not assume they will forgo enforcing the agreement in your case. To avoid unknowingly violating your non-compete, consult with an employment lawyer to review your agreement and evaluate your options and all possible consequences.
Defenses Against Enforcement
There are a number of defenses that have proven highly effective in defending against the enforcement of a non-compete agreement:
- Lack of legitimate business interests. If the agreement is not protecting trade secrets or highly unique skills, it may be void. An employer must prove the employee had access to actual trade secrets or possesses services that essentially make them irreplaceable.
- Fired without cause. New York courts will not enforce a non-compete agreement when an employer terminates an employee without cause. It would be unfair to enforce the agreement when the employer no longer wishes to employ the person, and the employee has done nothing to cause their termination.
- The Janitor Rule. Employees raise the Janitor Rule argument when a non-compete agreement is so overbroad that it would prohibit an employee from even working as a janitor at another company. Non-competes cannot be so overbroad as to prevent the employee from working in any job, even an unrelated job, with a competitor. Check out this article [link to https://ottingerlaw.com/blog/the-janitor-rule-mops-up-another-non-compete-agreement/] to see the defense in action.
- Employer breach. If an employer has failed to pay compensation, provide requisite notice before termination, or meet other requirements in the non-compete, the agreement may be void.
- Time period is too long. Non-competes should generally be limited to one year or less. This limitation must be evaluated in conjunction with the geographic scope, competitive activity, and nature of the information the employer seeks to protect. In some cases, a longer or shorter period may be appropriate.
- Restricted geographic area is too broad. Non-compete agreements should only prohibit activity in the area the company operates. This issue is complicated by the evolving nature of the business and the increased online activity by employers.
- No competition. If your new employer is not a competitor because they provide different services or are in a different market, the agreement may be void.
For more information, see our article on tactics to beat your non-compete agreement.
Tips for Negotiating a Non-Compete Agreement
When possible, you should negotiate more favorable terms to diminish any long-term, negative impacts of a non-compete agreement. You might consider negotiating the following:
- narrow the definition of competitive conduct;
- limit the geographic scope;
- shorten the duration; or
- ask for severance pay in the event of involuntary termination.
Keep in mind that if a company is recruiting you, you will likely have more leverage to negotiate than a person already employed by the company or a job-seeker who is one of many qualified applicants.
An employer cannot force you to sign a non-compete agreement, but they can make it a condition of employment. They may choose not to hire you or even terminate your employment. An employer can ask you to sign a non-compete at any time, before or after you have been employed.
Review & Consultation
If you are contemplating a non-compete agreement or currently bound by one, get a non-compete Review & Consultation. The Ottinger Firm can review your non-compete agreement and meet with you to discuss your options. We have litigated non-compete agreements in federal and state court and mediated, arbitrated and negotiated hundreds of non-compete disputes. For more information contact our non-compete attorneys at 347-305-5294.