For businesses, coming up with effective ways to protect valuable information and property from competitors is important to ensure the success of the business. There are a variety of ways to do this, including intellectual property protections and trade secret enforcement. Another way to do this is through restrictive covenants.
Restrictive covenants are not all the same. In some cases, an employer may only require an employee to keep information confidential or to refrain from soliciting the employer’s clients. Another type of restrictive covenant, the non-compete agreement, is more encompassing in that it prohibits an employer from competing with the employer within a given geographical area for a specified duration of time.
While restraints on trade are generally not favored in New York, non-compete agreements can be valid and enforceable, provided they are used to protect an employers’ legitimate business interests, do not present an undue hardship for the employee, do not injure the public interest, and are reasonable with respect to geographic scope and duration. Non-compete agreements must also be supported by sufficient consideration, which is the value the employer offers the employee in exchange for the agreement not to compete.
When a court determines that a non-compete agreement does not meet these requirements, the court is allowed to either set the agreement aside or to modify it so that it does meet these legal requirements. A good example would be when an employer specifies a geographic area that is larger than is reasonable in order to protect its legitimate interests. A court would be able to shrink that geographic area so that it meets the reasonableness requirement.
For businesses, it is critical not only to establish sound policies and procedures for negotiating non-compete agreements so that they meet applicable legal requirements, but also to work with an experienced attorney to ensure that their valid non-compete agreements are enforced in court, and that appropriate legal remedies are sought against former employees who fail in their obligations under these agreements.
Source: BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (1999).
