In today’s competitive job market, many employers require employees to sign a non-compete agreement or include non-compete provisions in employment agreements as a condition of employment. For employers, non-competes have a role in protecting intellectual property and retaining employees. But for employees, a non-compete, carefully drafted, can hamper an employee’s ability to earn a living in the future.
Are non-competes enforceable?
The law governing non-competes varies by state, and with a few exceptions, are generally enforceable. New York courts disfavor non-competes but will enforce them if they are: (1) reasonable in time and geographic area, (2) necessary to protect the employer’s legitimate interests, (3) not harmful to the general public (4) and not unreasonably burdensome to the employee. They are only prohibited in the broadcast industry.
What is a Legitimate Interest?
A legitimate interest is protection of an employer’s trade secrets, confidential information and preventing employees from taking specialized skills they gained during their employment to a competitor. If a non-compete is not necessary to protect these types of interests and simply restricts an employee’s ability to find new employment, it is unlikely that the agreement will be enforceable.
If a court determines that there is a legitimate interest at issue, it will examine the following:
- Geographic scope: New York courts will conduct a fact-based analysis to determine whether the geographic scope is reasonable, based on the type of business.
- Duration: New York courts repeatedly have held that restrictions of six months or less are generally reasonable. Beyond that, it’s a case-by-case basis.
- Scope of the impacted business activity: New York courts will not enforce non-competes where they are overbroad to protect the employer’s interests.
- Termination without cause: New York courts have held that a non-compete was unenforceable if the employer simply fires an employee for no fault of his or her own.
Note that proposed legislation introduced in 2017 would prohibit non-competes for employees earning less than $75,000 or employees terminated without cause. With the changing nature of today’s business world – where work can be done from anywhere and by remote employees, these clauses should be scrutinized carefully before they are signed.