Understanding Non Compete Clauses: The Top 5 Things to Consider in New York
In the world of business, non-compete clauses have become increasingly important in preserving the Ten Commandments of contractual agreements3 min read
In the world of business, non-compete clauses have become increasingly important in preserving the Ten Commandments of contractual agreements. Non-compete clauses are typically written to protect an employer's confidential information and prevent the use of ill-gotten trade secrets (by former employees) in direct competition to the employer. As a business owner, it is beneficial to understand how non-compete clauses serve as a preventative mechanism and how to properly assess the legality of these clauses once they are written.
Unfortunately, determining the legality of non-compete clauses in New York is not a straightforward process. As listed in New York’s Consolidated Laws 249, the finesse of drafting a proper non-compete clause requires a legal expert versed in local regulation and is experienced in the intricacies of New York labor law. To assist you in understanding the complexities, read on to find out the top five things to consider when writing a non compete clause in New York.
1. What Are The Grounds For Non-Compete Restrictiveness?
The most common purpose (and the legal basis) for crafting non-compete clauses is to protect the confidential information of the employer from leaking to competitors. Under New York law, a non-compete clause is enforceable when drafted to protect legitimate interests of the employer. These interests include protecting the employer’s confidential information, business reputation, customer relationships, and trade secrets. Grounds for legitimate interests also includes preventing the former employee from poaching the employer’s customers and employees.
2. What Are New York’s Standards of Reasonableness?
The standard of reasonableness is important for defining enforceable non-compete clauses in New York. As stated in the Turner case of 2003, a court will likely look at the extent of the non-compete restriction before even considering its legality. A non-compete agreement deemed “overly restrictive” limits the former employee’s opportunity and is, as a result, disallowed by New York state law. Legal experts suggest that non-compete agreements should seek to either limit professional activities of the employee or prevent them from working in specific geographic areas. Keep in mind that a court is the only entity entitled to decide, on a case-by-case basis, whether a non-compete clause is reasonable.
3. What Are The Necessary Elements of Non-Compete Clauses in New York?
In crafting a non-compete agreement, several regulatory elements must be included. These include details on duration, geography, and scope of the professional activities prohibited. Moreover, non-compete clauses that are to be enforced as part of a terminated employee’s agreement must include sufficient consideration. This includes financial or something of value which the employee would receive, such as job security or a bonus.
4. Can Non-Compete Clauses Change After Termination?
As a business seeking legal counsel regarding non-compete clauses, it is important to understand that an employer cannot apply alterations to a non-compete clause following the termination of the employee. Since the clause was part of the employee's agreement when they were first hired, changes cannot be applied immediately and without consent and due consideration if demanded by the employee.
5. What Are the Potential Risks and Implications of Non-Compete Clauses?
Non-compete clauses can have both positive and negative implications. On one hand, non-compete clauses are beneficial because they help protect an employer’s business ventures and information from leaking. Additionally, non-compete clauses can limit competition and preserve customer relationships that are already established with other clients. On the other hand, non-compete clauses can impede the opportunity and inherent right of the employee to pursue their livelihood. Moreover, it is important to keep in mind that under New York law, employers must provide appropriate consideration before enforcing non-compete clauses in an employee agreement.
Employers who craft non-compete agreements must ensure that each clause is accurate and legal in its design. The legal team at UpCounsel understands the importance of these clauses and strives to offer experienced guidance on this matter. Dedicated to providing first-rate representation to those in need of legal counsel, UpCounsel’s trusted network of business lawyers can help you assess the validity of your non-compete clauses so you can move forward without doubt or uncertainty.
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