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Non-Competition Agreements FAQ: Is my Non-Compete Contract Clause Enforceable?

Thumbnail image for Thumbnail image for above-the-bar-logo-no12.jpgPossibly – it depends on the reasonableness of the terms. There has been a rise in lawsuits over non-compete agreements given the immense amount of money and time invested into employee training and their value. In this economic climate many employees are transitioning employers and are examining non-compete clauses contained in their employment agreements, confidentiality agreements or severance agreements. A non-compete clause is basically an agreement prohibiting you from leaving your employer and then working for a competitor or opening up your own business to compete with your former employer. Non-compete clauses are most prevalent in the medical, pharmaceutical, technology insurance, financial and entertainment services industries. Even celebrities such as Conan O’Brien, who is prohibited from competing with NBC until the fall, must comply with no-compete agreements. Before you sign a non-compete agreement, our experienced New York employment law attorneys can help you negotiate better terms and protect your rights which could affect your future employment. Our New York employment lawyers can help you get out of your non-compete as well.

New York courts generally do not favor non-compete clauses and do not like the idea of preventing an individual from working but they will enforce your non-compete agreement if its terms are reasonable. For example, in deciding whether a non-compete clause is reasonable or not, the court will examine what geographic area the covenant covers. This is fact specific analysis as a five mile radius in New York City may be overbroad and unreasonable but the same five mile radius in Central New Jersey may be reasonable. Courts consider the length of your non-competition provision. Again, the analysis is unique but terms of over two or three years may be considered unreasonable. If the employee was also a shareholder and owner in the business and signed a non-compete a longer term may be considered reasonable. In addition, the court will consider various factors, including the type of business, the location of the business and the customers, the nature of your responsibilities, the kind of customer contacts you developed, and the availability of comparable positions and the extent to which you can earn a living. Just because your employer drafted the agreement too broad does not necessarily provide you with immunity. New York courts may “blue pencil” or modify the covenant to make it reasonable if the terms are too broad and the agreement indicates that there was intent for the court to do so.

New York also uses the doctrine of “inevitable disclosure” where you can be stopped from competing against your former employer because it is “inevitable” that you will disclose trade secrets just by working for the competitor, even where there is no express covenant restricting you. The courts look at several factors to determine whether there is “inevitable disclosure” of trade secrets, including to what extent your new employer is a direct competitor of your former company, the type of business, the similarities between your old job and new position, and the extent to which trade secrets would be valuable to your new employer.

The New York courts have also applied the employee choice doctrine. This is where the court will uphold a non-compete clause without determining whether it is reasonable or not when you have a choice between receiving post-employment benefits (such as deferred compensation or stock option plan) and complying with your employer’s restrictive covenant versus working for a competitor and letting go of your post-employment benefits. For example, if you voluntarily leave your job to work for a competitor, the courts will enforce the forfeiture of your post-employment benefits without determining whether the non-compete clause was reasonable. However, if you were fired without cause and then work for a competitor, the court will not apply this doctrine and judicially decide whether you get to keep your post-employment benefits based on whether the non-compete clause was reasonable or not. These “forfeiture for competition” clauses are frequently contained in ERISA top-hat plans and are also enforceable under federal common law.

Depending on the facts of each individual case, your non-compete agreement may or not be enforceable in New York. If you have not signed anything yet, it is best to eliminate any non-compete clauses in your employment contract or post-employment benefit package. However, most employers will want some protection against you competing with them in the future. Since a non-compete clause will affect your livelihood, be cautious and consult with an experienced employment law lawyer before signing. Our attorneys can negotiate the terms and conditions of the agreement and what happens if you resign, get fired, or if the company is downsizing.

If you or your loved ones needs help understanding or negotiating a better non-compete clause, or getting out of one, our experienced New York Employment Law Attorneys can help you. E-mail or call us now at (800) 893-9645 for a free initial telephone consultation.

Thank you for visiting our Blog. This blog provides general information and thoughts about various employment law issues primarily in the New York Tri-State area and occasionally in other areas. You are welcome to read the posts. However, do not construe any content on this blog as legal advice or the creation of an attorney-client relationship. Again, we provide the content only for informational purposes. You should not make decisions based information on our blog since the application of the law depends on the facts and each situation may be different. In addition, the law in most jurisdictions is different and changes constantly and we make no representations that any information on our blog has been updated. The Blog should not be used as a substitute for competent legal advice from an experienced employment law attorney in your state or jurisdiction.

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