A New York non-compete agreement limits employees from finding work with their employer’s competitors once their business relationship terminates. Most of these contracts are limited to certain time restraints and geographical areas, the exact length, and distance of which will need to be established in the agreement provisions. The agreement must also list the consideration (benefit) the employee will receive for signing, or it will be deemed unenforceable; this may come in the form of the initial employment itself, financial compensation, or an increase in skill or professional status.
Non-compete agreements are enforceable in New York, although they are generally disfavored by state courts for their restraint on trade. For a non-compete to be deemed enforceable, it must meet the following criteria:
- It must be necessary but no greater than required to protect the employer’s legitimate business interests;
- It does not impose excessive hardship on the employee;
- It does not cause the public any harm; and,
- Its geographical and durational scope are equitable.
An exception to the above criteria is the “employee choice doctrine,” which states that when the employee has a choice not to compete and retain post-employment benefits or compete and lose those benefits, the court will enforce the non-compete regardless of reasonableness.
- Protectable interests. A non-compete agreement may be enforced if the employer has protectable business interests, which may include:
- Sensitive information and trade secrets;
- Customer goodwill (if the customer relationship started during the employee’s term);
- Preventing hard caused by an employee with unique, special, or extraordinary services from working with a competitor; and,
- The employer’s client base and confidential customer information.
- Lawyers. The New York State Bar Association stipulates that legal professionals may not enter into any agreement that impedes their ability to practice law (except those concerning retirement benefits.
- Financial industry employees. A non-compete is unenforceable if it attempts to prevent a registered representative of the Financial Industry Regulatory Authority (FINRA) from bringing their customers to another firm. However, an agreement that prevents the solicitation of customers could be enforced.
- Broadcast employees. Broadcasting industry employers are prohibited from requiring any on-air or off-air employee (excluding management) to enter any agreement that would restrict them from working for a specific time, in a particular geographical area, or with a specific employer or industry.
Though New York courts determine the maximum allowable period on a case-by-case basis, restrictions of six (6) months or less have been repeatedly upheld, as exemplified in Ticor Title Ins. Co. v. Cohen, and Natsource LLC v. Paribello.
Longer terms are also upheld under certain circumstances. In the case of John Hancock Mut. Life Ins. Co. V. Austin, the court determined a two (2) year covenant was reasonable because it was limited in time and geographical scope and did not overly burden the former employee nor the public.
Restrictive periods of up to five (5) years have been enforced as well, as was the case when a physician was barred from competing with his former medical partnership for that duration.
No state statute limits the geographical area of a non-compete agreement, and New York courts take the facts of each case to determine the reasonableness of these restrictions.
In one case, a nationwide restriction was deemed unenforceable due to the fact that the employer was only operating in eight (8) states. While a physician was banned from practicing within a 30-mile radius of the village where his partners practiced unless otherwise permitted in writing.
Due to technological advancements and global competition, New York courts have been known to enforce broad geographic restrictions. In one case, a nationwide rule was enforced because the former employee could conduct his business anywhere there was a telephone.
A non-compete agreement must be supported by sufficient consideration that benefits the employee. This may come in many forms, including:
- The commencement of employment;
- Continued employment if the employee remained with the employer for a long time after the covenant was signed or if termination was the alternative to signing;
- The employee was provided payments in exchange for singing the restrictive covenants; or,
- If the employee received an augmentation in professional status, skill, or knowledge.
Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D.2d 250, 257, 589 N.Y.S.2d 903, 907 (1992)
- BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220 (N.Y. 1999)
- Reed, Roberts v. Strauman, 40 N.Y.2d 303, 307, 386 N.Y.S.2d 677, 353 N.E.2d 590 (N.Y. 1976)
- Morris v. Schroder Capital Mgmt. Int’l, 825 N.Y.S.2d 697, 700-01 (2006); Post, 421 N.Y.S.2d at 848
- Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70 (2d Cir. 1999)
- Silipos, Inc. v. Bickel, No. 1:06-CV-02205, 2006 WL 2265055 (S.D.N.Y. Aug. 8, 2006), No. 05 Civ. 4356 (RCC) (S.D.N.Y. Aug. 8, 2006)
- NY ST RPC Rule 5.6
- FINRA Rules 2140 and 11870
- N.Y. Lab. Law § 202-k
- Natsource LLC v. Paribello, 151 F. Supp. 2d 465 (S.D.N.Y. 2001)
- John Hancock Mut. Life Ins. Co. v. Austin, 916 F. Supp 158 (N.D.N.Y. 1996)
- Gelder Med. Group v. Webber, 41 N.Y.2d 680, 394 N.Y.S.2d 867, 363 N.E.2d 573 (N.Y. 1977)
- Good v. Kosachuk, 49 A.D.3d 331, 332, 2008 N.Y. Slip Op. 2031, 853 N.Y.S.2d 75, 77 (N.Y. App. Div. 2008)
- GFI BROKERS, LLC v. SANTANA, 06 Civ. 3988 (GEL), 06 Civ. 4611 (GEL) (S.D.N.Y. Aug. 6, 2008)
- Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D.2d 250, 257, 589 N.Y.S.2d 903, 907 (1992)
- Lenel Sys. Int’l, Inc. v. Smith, 106 A.D.3d 1536, 966 N.Y.S.2d 618, 621, 2013 N.Y. Slip Op. 3259 (N.Y. App. Div. 2013)
- Young Co. v. Galasso, 142 Misc. 2d 738, 741, 538 N.Y.S.2d 424, 427 (N.Y. Sup. Ct. 1989)
- Scott, Stackrow & Co., C.P.A.’s, P.C. v. Skavina, 9 A.D.3d 805, 806-08, 780 N.Y.S.2d 675, 677-78 (2004)
New York Non-Disclosure Agreement – This document restricts employees from divulging their employer’s confidential information to unauthorized parties.
New York Non-Solicitation Agreement – A contract that prohibits the solicitation of a business’s customers by an employee or other entity.