Non-Compete Agreements In New York: Pushing the Limits Of Enforceability

How far can you go in the restriction of past employee competition in a sophisticated commercial market?

Your employees are one of your company’s greatest assets. You possibly spend more time and money on your staff than any other component of your business. After all, your company simply won’t exist as you know it without the dedication and intellect of your human capital. You cannot afford to continuously train and invest in people who walk out the door after a year or two, only to become your competition. As far as long-term success is concerned, that is a model for disaster. As a committed employer, what are your options? 

As a part of the onboarding process, you’ve likely had your HR department generate a series of documents for new hires. Among those docs, you may have included a confidentiality agreement and a non-compete agreement. Post-employment restrictions can be tricky and will be placed under a microscope in the eyes of the court as they are counter-intuitive to the promotion of a zealous commercial environment. To bring innovation and progression to the marketplace, the law encourages fair and open competition. And, as a society, the faster that can happen, the better we like it. 

The standard language found in these agreements may read something like this:

       “Employee hereby agrees to refrain from the use

        of any information obtained during the scope of

        employment to benefit any person, entity, or

        corporation other than the Company while the

        employee is employed by said Company or

        anytime thereafter.”

And, 

        “Employee hereby further agrees to abstain from direct

         competitive practices with the Company without the

         expressed written consent of the Company for a period of

         4 times the duration of the employee’s employment with

        said Company.”

New York courts have never definitively answered the question as to whether or not such a broad stroke is enforceable. For decades, courts nationwide would uphold covenants non-competes so long as they were reasonable in time, geographical area, and were designed to protect the former employer’s “legitimate protectable interests”. Plainly stated, it would be difficult to limit your former employee from starting a similar business in an adjoining state for the years that follow the termination of employment. Thus, it was always a challenge to strike the exact balance of protections for the former employer and the ability to move on for the former employee. The caselaw makes it clear that each case is decided on its specific fact pattern and not necessarily an interpretation of mandatory precedent. 

Recently, in Buchanan Capital Markets, LLC v. DeLucca*, the plaintiff sought injunctive relief to stop a former employee from engaging in practices deemed detrimental to his former employer. Those practices included the loss of customers to the former employee. The trial court denied the motion stating that the plaintiff failed to demonstrate that the covenant non-compete was enforceable by showing a “continued willingness to employ the party covenanting not to compete”, which in this case, was the former employee. See, Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 89 (1979). 

*2016 NY Slip Op 07611 Decided on November 15, 2016

Beyond that threshold, the court in Buchanan Capital stated that the plaintiff would also be fatally remiss by failing to demonstrate an “irreparable injury” to the former employer based on the actions of the breaching party. Irreparable injury ... a term that is classically defined in law school classrooms referring to a situation where money doesn't “fix” the problem, e.g. cutting down a tree that belongs to a neighbor. 

With the aforementioned decision by the court in mind, it seems as though New York courts will work hard to find a way to promote less post-employment restrictions and allow the marketplace to determine and reward the party considered to be the most entitled to prosper.  

Good Luck!

Disclaimer: We are not attorneys and cannot provide legal advice. The research-based content presented does not in any manner serve as legal advice and is to be used for informational purposes only.

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