Under New York law, non-compete agreements and other restrictive covenants in employment contracts are disfavored, and are enforceable only in limited circumstances. New York courts enforce non-competes only if all three of the following conditions are met:
1. The non-compete is reasonably limited in scope and duration;
2. The restrictions are no greater than necessary to protect the employer’s legitimate interests;
3. The non-compete is not harmful to the general public;
4. The non-compete is not unreasonably burdensome to the employee.
Even when those four requirements are met, an employer seeking to enforce a non-compete agreement has to prove it is not merely seeking to use the non-compete agreement to prevent competition. Instead, it has to show the non-compete is necessary to protect its legitimate interests, such as to prevent the employee from using or disclosing its trade secrets or confidential information, to protect the company’s goodwill, or to prevent special harm due to the unique nature of the employee’s job.
There are few bright line rules regarding when a non-compete agreement is reasonable. In deciding whether a restrictive covenant is reasonable, courts consider a number of factors and balance the right of the employee to work and earn a living against the importance of the restrictions to protect the employer’s business. In terms of duration, covenants not to compete for 6 months or less are generally reasonable. New York courts have approved non-competes lasting up to two years when the restrictions are otherwise reasonable and not too burdensome for the employee.
If an employee is receiving compensation from her former employer during the period when she is supposed to refrain from competition, such as severance pay or garden leave pay, the non-compete is more likely to be upheld.
Even when a non-compete agreement is reasonable, it is still unenforceable if the employer fired the employee without good cause. Likewise, a reasonable covenant not to compete is unenforceable if the employer breached the employee’s employment contract.
Attorneys, as well as stock brokers and other registered representatives under Financial Industry Regulatory Authority (FINRA), should be aware that special rules apply to their non-compete agreements in New York. For example, agreements that restrict attorneys from practicing law are unenforceable, except as a condition for receiving retirement benefits. Likewise, contracts that prohibit customers from continuing to use the services of their registered representative are not enforceable.
If you have questions about your non-compete agreement and would like to know whether it is enforceable in New York or New Jersey, please contact an experienced employment attorney at Rabner Baumgart Ben-Asher & Nirenberg.