Restrictive Employment Covenants in New York
Our New York City business lawyers have handled numerous cases involving litigation over restrictive covenants in employment, partnership and other relationships. Usually when an employee or a business partner opts to leave their current situation, the other party will be vindictive and attempt to teach the other party a lesson through a court action to enforce a restrictive covenant. While being served with an Order to Show Cause seeking to enforce a restrictive covenant can be a nerve rattling experience, our commercial litigation lawyers have successfully litigated many of these cases and most of these restrictive covenants are unenforceable.
The New York Courts have strictly limited the enforcement of broad restraints on competition and it is the law in New York that broad unlimited restraints against competition are void for overbreadth. The New York Courts are typically harsh on restrictive covenants because of the important public policy against sanctioning the loss of a person’s livelihood.
Jurisprudence in New York has repeatedly applied the modern, prevailing common-law standard of reasonableness for the enforceability of employee non-compete agreements. Under this rule, to be enforceable, the restrictive covenant must be reasonable. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. Likewise, to be enforceable, an anti-competitive covenant agreement must be reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee. A violation of any prong renders the covenant invalid.
Where a restrictive covenant has an effect of prohibiting someone from employment in a given metropolitan area or an entire county, the Courts in New York will strike it down as overlybroad and unenforceable. A covenant will also be rejected as overly broad, if it seeks to bar the employee from soliciting or providing services to clients with whom the employee never acquired a relationship through his or her employment or if the covenant extends to personal clients recruited through the employee’s independent efforts. Likewise, the Courts will find a restrictive covenant to be void where it prohibited a person from working in their industry in the entire City.
The Courts have tailored the permissible scope of these restrictive covenants, by recognizing that an employer’s legitimate interest is limited to preventing an employee from misappropriating trade secrets or confidential customer lists, or keeping an employee with unique or extraordinary skills from joining a competitor to the employer’s detriment. Howver, where a covenant not to compete seeks to bar former employees from soliciting customers with whom it never had an established relationship and clients recruited through the former employee’s independent efforts, the restrictive covenant is manifestly overbroad. The New York Courts have even held that customer lists and model contact information are confidential, where the party seeking to enforce the covenant cannot prove that the information is not readily available to others in the same industry. It is also black letter law that knowledge of the intricacies of a business operation are not a trade secret which is entitled to protection.
Whether you are considering switching employment and you wish to have our attorneys review your employment or you have just been served with an order to show cause, our attorneys are ready to help. We have offices in New York City (both Manhattan and Queens).