Are Non-Compete Agreements Legal In New York?
In some industries, employees may be asked to sign what is known as a non-compete agreement, either upon their hiring or upon their departure. Non-competes, as they are referred to, came about to help companies protect trade secrets when employees departed, as without them, there was nothing to stop an employee from using those secrets to create a business of their own. However, times have changed, and non-competes, while still legal in New York, have rapidly fallen out of favor in most cases.
A “Presumption Of Unenforceability”
In a vacuum, a noncompete agreement is intended to balance the interests of the departing employee with the employer’s right to preserve their status quo. Usually, it will enjoin a departing employee from starting their own business in the same industry, as well as prohibiting them from unlawfully using trade secrets or poaching clientele. However, in practice, noncompetes have historically been used against the employee who signs them, often placing them in a position where they cannot work in their chosen industry for what may be an arbitrarily long period of time.
In general, there is a presumption of unenforceability in New York law when it comes to non-compete agreements. Previous case law holds that in most cases, it is against public policy – that is, it would shock the conscience of a reasonable member of the public – to “sanction the loss of [someone’s] livelihood.” What this means is that barring a specific or unusual situation, courts do not want to enforce noncompete agreements because it has the potential to wholly put the departing employee out of work through no fault of their own.
A Three-Part Test
While New York courts will be acutely aware of the presumption of unenforceability, there is a test to determine whether such an agreement can actually be enforced. There are three prongs:
- The agreement must impose no more restriction than is necessary to preserve the employer’s interests;
- It cannot impose an undue hardship on the employee (and in New York, the definition of ‘undue hardship’ is a burden which causes “significant difficulty or expense”); and
- It cannot be “injurious to the public.”
New York law recognizes that a business has the right to protect their legitimate interests and try to avoid harm. If the employee is ‘unique or extraordinary,’ or they have access to trade secrets which would harm the former employer’s company, a court may enforce a non-compete agreement if it exists. This is because in such a situation, the company would be losing something (or someone) irreplaceable, which by definition means that it suffered harm. Losing someone or something that is replaceable means that no real harm happened, and there is no right there to protect.
Contact A New York Employment Lawyer
Noncompete agreements are steadily becoming less and less common in most industries, but in some situations, they can and will be enforced. If you have signed a noncompete agreement, or you are being asked to, it is a good idea to contact a New York City noncompete and nonsolicitation agreement lawyer from Mansell Law to be certain that you understand your rights and responsibilities. Contact our office today at (646) 921-8900 for a free consultation.
Source:
leagle.com/decision/196328013ny2d2671241
