By Lisa Giunta-Popeil, Esq.
Restrictive covenants have become commonplace in many New York employment contracts, including in the healthcare industry. One frequently included restrictive covenant is an agreement not to compete. While the Federal Trade Commission is currently considering whether to ban non-compete agreements entirely and the New York State Senate and Assembly have also considered bills curtailing non-compete agreements, presently they remain enforceable in New York, but only in certain circumstances. Below are five fast facts to help you better understand restrictive covenants not to compete.
- What Exactly is a Restrictive Covenant Not to Compete?
Employers rely on non-compete agreements to prevent their employees and former employees from either working for a competitor or from starting a similar business both during their employment and for a period of time after their employment comes to an end. Any restrictive covenant not to compete must be designed to protect the employer’s legitimate interests and not be harmful to the public. Examples of legitimate interests include preventing unfair competition, particularly from a prior employee who provided unique or extraordinary services, and preventing the misappropriation of the employer’s trade secrets and confidential customer lists.2.
2. A Restrictive Covenant Not to Compete Cannot be Unduly Burdensome
The law in New York prevents the enforcement of non-compete clauses that are unduly burdensome. The central consideration when analyzing whether an agreement not to compete is unduly burdensome is whether it impairs the employee’s ability to earn a living. Where a non-compete restrictive covenant will cause the employee to lose his or her livelihood, it is less likely to be enforced.
3. There are Geographical Limits to Non-Compete Agreements
A restrictive covenant not to compete will, in most cases, be disfavored if it does not include any kind of geographical restrictions. Rather, a non-compete clause should include a geographic limitation that is reasonable in scope. “Reasonableness” in this context is often determined based on the specific facts involved in the matter, but generally speaking, a restraint will be reasonable so long as it is no greater than is needed to protect the employer’s legitimate interests.
4. Non-Compete Agreements Must Include Reasonable Time Periods
Likewise, a restrictive covenant not to compete should be limited to a reasonable period of time. Critically, an analysis of the reasonableness of a restrictive covenant’s time period will frequently go hand-in-hand with that of the reasonableness of its geographical scope. For example, where the geographic restriction is narrow, a longer time period restriction may be viewed as reasonable. In contrast, if the geographic restriction is broad, typically a shorter time period restriction will be required.
5. A Non-Compete Agreement is Generally Enforceable Against Learned Professionals and Other Employees Whose Services are Unique or Extraordinary
With certain exceptions, such as attorneys or broadcast employees, a non-compete agreement will generally be enforced against learned professionals and other employees whose services are unique or extraordinary, provided the agreement is otherwise reasonable, including in time and scope. Thus, members of the learned professions, such as doctors or accountants, may be subject to restrictive covenants not to compete.
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