There has been a growing movement toward limiting or banning non-compete agreements in various states. On a federal level, the Federal Trade Commission’s (FTC) issued a non-compete ban that was stayed by a federal court before it went into effect. New York has not enacted a total ban. On December 22, 2023, New York Governor Kathy Hochul vetoed the bill that would ban all new non-competition agreements for workers in New York.
While this means you can use non-compete agreements (also known as restrictive covenant agreements) to protect your proprietary information, these agreements are subject to strict scrutiny by courts. They must meet specific criteria to be enforceable, as explained below.
Criteria for enforceability
First, the agreement must protect legitimate business interests. It must be designed to protect trade secrets, confidential information or customer relationships and not stifle the employee from finding new opportunities.
A non-compete agreement should also be reasonable regarding its duration and geographical scope. In other words, it should last a reasonable time and cover a practical geographical region. An overly broad or restrictive agreement is unlikely to be enforced.
Similarly, an agreement that is unfair or places an undue burden on the employee will likely fail the legal test because it severely limits the employee’s ability to earn a livelihood. Lastly, the employee must receive some benefit, such as specialized training or guaranteed employment for some time, in exchange for signing the agreement.
The law surrounding non-compete agreements in New York is complex and ever-evolving, and what works now may be void down the line. It makes it crucial for employers and employees to seek legal guidance when dealing with these contracts. Employers must ensure that their agreements are carefully crafted to meet legal standards, while employees should understand their rights before signing.
