Legal Question in Employment Law in New York

A non-compete clause (sometimes referred to as a convenant not to compete) is a contract or provision that is sometimes seen in employment law. It is, as its name suggests, an agreement by an employee not to compete with the employer after the employment relationship ends.

Often, but not always, a non-compete clause is presented by the employer to the employee at the time that the employment begins. Sometimes, however, the employer asks an existing employee to sign such a clause; in those cases, the employer must give something of value to the employee in exchange in order to make the non-compete clause enforceable.

Because non-compete clauses arise in situations in which the employee often has little or no bargaining power, the clauses are rarely actually the product of a negotiation. Typically, they are signed by the employee just as they are presented, without any changes.

An employer is sometimes concerned that information or relationships that the employee will establish during the course of the employment will later be used to undermine the employer. An employer has a legitimate interest in preventing former employees from exploiting or appropriating the goodwill of a client or customer (which had been created and maintained at the employer's expense) to the employer's competitive detriment.

Non-compete clauses usually will state a period of time during which, and a geographic area within which, the employee is prohibited from competing after the end of the employment relationship.

The ultimate question, typically, is whether the restriction is a restraint greater than what is needed to protect the employer�s legitimate interests. Part of the inquiry is whether a former employee uses confidential information to attract clients or customers of the former employer with whom he had not had a relationship is relevant.

When a court deems the non-compete clause to be broader than what is needed, the court can refuse to enforce the clause. Thus, employers will have an incentive to design non-compete clauses that are not draconian.

The typical non-compete clause will specify a period of time in which it will be in effect � usually for a year or two, but sometimes for far longer. It will also specify the geographical distance � usually measured from the employer�s place of business � within which the employee will be prohibited from working. The key to evaluating a non-compete clause is to analyze the duration and the geographical area covered.

Non-compete clauses are governed by a standard of reasonableness. To be valid, time and area restrictions must be:

1. necessary to protect the employer�s legitimate interests;

2. not harmful to the general public; and,

3. not unreasonably burdensome to the employee.

Courts will find a non-compete clause to be reasonable only if it meets all three of the prongs listed above. A violation of any one prong can render the entire covenant invalid.

Under the first prong, the employer�s interests are limited to protection against misappropriation of employer trade secrets or customer lists, or protection from competition by a former employee whose services are unique or extraordinary (which includes professionals).

Reasonableness is measured by the circumstances and context in which enforcement is sought.

What is a reasonable geographical area to cover will depend, in large part, on the type of area. For example, a non-compete clause that applies in New York City will be treated differently from one in a rural area. A ten-mile radius may be completely unreasonable in New York City, but quite reasonable in, say, Sidney, New York, a village not far from Binghamton and Oneonta. One case involving that municipality found that a radius of 30 miles from the village was a quite reasonable geographical restriction.

To the extent that there is a national code of professional conduct that obligates the employee to act in a way that serves the public interest, will factor into the equation.

In the legal profession, for example, there is a rule that states that �[a] lawyer shall not that be a party to or participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement, except as a condition to payment of retirement.�

The most prudent approach is to have an attorney evaluate the non-compete clause before it is signed. Nonetheless, that is not frequently done, and it doesn't sound like it was done in your situation. An attorney should evaluate the non-compete clause.

If you would like, I would be happy to evaluate the clause and offer you some insights as to whether there is, in fact, any way around the agreement. You may feel free to contact me (or, of course, any other attorney of your choosing).