Have you been offered a non-compete agreement in New York or been asked to sign a New York non-compete agreement? If so, you should speak to an attorney to determine your rights under the non-compete agreement, whether the agreement is enforceable and what you can do to try and protect yourself in the event that your former employer intends to enforce the non-compete agreement. Also, you may need to receive a formal legal opinion from a prospective employer to determine whether the non-compete agreement is enforceable.
Non-compete agreements are permitted in the state of New York. This state follows reformation doctrine. Reformation doctrine allows judges to take out, add, or change language in non-competes to ensure that they are in agreement with the law. For example, if the court rules a clause within the non-compete is too broad, the judge may add specifying language to the clause or remove it all together. The non-compete agreement is then enforceable in its newly edited state.
To be an enforceable agreement in New York, a non-compete must meet four requirements. First, it must be considered “reasonable in time and space”. A non-compete agreement should not restrict a person from working in an unreasonably large geographic area or for an unreasonably long period of time. Related, a non-compete agreement should not have any restrictions that are not necessary to protect legitimate business interests. To be enforceable an agreement should not “impose undue hardship on the employee”. The non-compete should not make it unreasonably hard for an employee to find work. Finally, to be enforceable a non-compete cannot be “injurious to the public”.
The state of New York list specific business interests that are protectable under a non-compete. Trade secrets and confidential information are considered protectable interests. Business goodwill, or immeasurable assets of value like brand name and consumer relations, is also considered a protectable interest. Employees who have provide “unique or extraordinary services” are also considered a legitimate interest. This means non-competes can be used to protect a company from losing highly skilled and specialized employees. This differs from many other states’ laws which only protect a company if it provides unique or specialized training.
In 2008, Governor Patterson signed the “Broadcast Employees Freedom to Work Act” into law. It generally works to stop former employers from enforcing non-competes against former employees. So, although non-competes are overall permitted in the state people working in the broadcasting industry are exempt from non-competes.
Other changes may be coming to non-compete laws in New York. In 2016, the New York Attorney General’s office (NY AG) investigated the sandwich franchise Jimmy John’s for including non-competes in the employment contracts of minimum wage workers. In addition to Jimmy John’s, the NY AG office also investigated Law 360 and WeWork for the “misuse of non-competes of rank-and-file employees”. Rank-and-file employees are considered minimum wage workers or employees who do not hold executive or managerial positions.
The NY AG office found that enforcing non-competes was particularly detrimental to this class of workers. They restrict employment mobility, a tool low wage workers rely on to fully practice economic freedom. Recently the NY AG has announced legislation that would restrict the use of non-competes for workers who earn less than $75,000 a year. Currently, the “proposed legislation remains under consideration.”
State law also mandates continued employment is considered sufficient consideration. In contract law considerations are the benefits a party receives for signing a legal contract. Legally, when entering a binding contract both parties must receive some sort of benefit or consideration. In New York guaranteeing continued employment in exchange for signing a non-compete is considered enough of a benefit to make the contract fair.
Whether or not non-competes are considered enforceable against employees who were terminated without cause is still up for debate in New York. Court cases also seem split between enforcing and not enforcing. Marsh USA, Inc. v. Alliant Ins. Services, Inc is a case where three executives from Marsh began working for Alliant after they were terminated without cause. They informed former clients they no longer worked for Marsh and many followed them to Alliant. Marsh sued and asked the courts to grant them an injunction.
However, the judge decided Marsh could not prove the non-compete had been breached. Marsh was only able to prove was a handful employees left and joined a different firm. The court felt that not only was an injunction not necessary, but also that granting one would also waste the time and money for both the defendants and their clients.
Another case, SIFCO Indus., Inc. v. Advanced Plating Techs, Inc., also maintains a non-compete should not be enforced against a person who has been terminated without cause. After SIFCO Indus Inc. purchased the assets of another company and closed a power plant. The employees who were terminated due to the closing of the plant decided to start their own competing company, Advanced Planting Techs, Inc (APT).
Because the company was in the same area and field, SIFCO decided to sue the APT founders for violating their non-compete agreements. In the decision the judge wrote, “[e]nforcing a noncompetition provision when the employee has been discharged without cause would be unconscionable because it would destroy the mutuality of obligation on which the covenant not to compete is based.” Non-competes are agreements between an employer and a company. The SIFCO Indus., Inc. v. Advanced Plating Techs, Inc. decision argues that by terminating a worker without cause the employer is violating that agreement, making the non-compete unenforceable.