Big Changes to Enforcement of New York Employer’s Non-Compete Agreements

December 14th, 2016

Non-compete agreements are prevalent.

The trend has been for employers to require everyone (lawn care workers, interns, summer camp workers, etc.), regardless of skill, to sign non-competes.

This trend is poised to change.

Recently, a journalist challenged the validity of her New York non-compete agreement when her former employer (Lexis Nexis d/b/a Law360) informed her new employer (Reuters) of her non-compete and Reuters terminated her employment.  Law360 settled with the New York Attorney General’s Office and prompted New York Attorney General Eric Schneiderman to state that, in 2017, he will introduce a bill that would prohibit non-compete agreements that bind employees under a certain wage threshold and are broader than needed to protect trade secrets.

Importantly, the Law360 settlement does not prevent it from enforcing non-compete agreements against senior employees and other key employees. The scale back means that New York non-competes will be limited to their initially intended purpose of preventing key employees from divulging trade secrets.

What is a Key Employee under New York Law?

In order to be enforceable, non-compete agreements should be limited to a legitimate business purpose.  A legitimate business purpose should be understood to mean a key employee. A key employee is an employee that could divulge an employer’s trade secrets or customer goodwill to a competitor, or an individual who has “uniquely special skills.”  Customer goodwill are past customers that the key employee developed relationships with based on the employer’s good name.

Particularly low-wage earners, “rank and file” employees, should not be restricted from working for a competitor after termination of employment.

In New York State, non-competes have been upheld where they:

  • Are no broader than is required to protect the employer’s legitimate business purpose interests (i.e. trade secrets, confidential information, customer goodwill, preventing the loss of managerial, executive level or other similar employees to competitors);
  • Do not impose undue hardship on the employee;
  • Do not injure the public;
  • Have a reasonable duration of existence (typically 6 months or less), and;
  • Have a reasonable geographic scope (although NY courts have enforced non-competes that have had no limitation on geographic scope, so long they were “reasonable under the circumstances”)

Restrict your non-compete agreements to the above and ensure that they are not overly broad nor harmful to low ranking workers simply seeking to change jobs or advance their careers.

 

Have You Lost a Key Employee to a Competitor?

If you’ve lost an employee who knows your trade secrets or taken customers, that were developed through your goodwill, to a competitor, or who has “uniquely special skills, it is important to get legal help to know your rights.  Contact the experienced attorneys at Bellavia Blatt, PC for help.  Our firm has over twenty-five years of experience handling employment contracts.  We can help you draft a non-compete agreement that will protect your business.

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