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What could make your noncompete agreement unenforceable?

| Sep 9, 2019 | Employment Law |

If you’re considering another job, you need to know if the noncompete agreement you signed with your current company is enforceable. What competing jobs does it restrain you from taking, and for how long?

Noncompetes can be a perfectly legitimate requirement of doing business. They allow companies to prevent employees from learning the job and then taking what they know to work for a competitor. They help protect trade secrets and other proprietary information.

That said, they also act as a restraint on trade. Courts have been reluctant to enforce this restraint unless it is reasonable. Therefore, they have limited the enforceability of noncompete agreements against employees who have little access to sensitive information and no more than average skills.

In New York, the courts are highly skeptical of noncompete agreements because they limit the employee’s ability to find other employment Therefore, New York courts will only enforce a noncompete agreement if it is narrowly tailored to protect a legitimate business interest, imposes no undue hardship on the employee and is not injurious to the public.

Protecting confidential information, trade secrets, client information, customer relationships and “unique or extraordinary” services is considered a legitimate business interest. Merely preventing skilled competition is not.

In addition, the employee must have received something in exchange for signing the noncompete agreement. A promise of future employment is sufficient, absent coercion, and a promise of continued employment may be sufficient in some circumstances. Financial benefits, knowledge, experience and skill may be enough.

Noncompetes must be reasonable in scope

Businesses often assume that they should forbid as much activity as possible through a noncompete agreement. For example, they may wish to prevent a departing employee from working anywhere in the entire industry, anywhere in the world, forever. This would generally not be enforceable.

To be enforceable, a noncompete needs to be narrowly tailored in geographic scope, duration and prohibited activities.

Courts look at the entirety of the circumstances when considering whether a noncompete is reasonable. Depending on the particular situation, it might be reasonable for the noncompete to be unlimited in geographic scope, but only for a short duration.

Similarly, the scope of the prohibited activities must be reasonable. In New York, limiting the employee’s business activities will typically only be allowed if necessary to:

  • Prevent the employee from soliciting or disclosing trade secrets
  • Prevent the employee from releasing confidential customer information
  • In rare cases, prevent the employee’s unique or extraordinary services from being used by a competitor

More and more, lawmakers and courts are cracking down on unreasonable noncompete agreements, especially among lower-level or lower-income employees. If you would like to know if your noncompete agreement is likely to be enforceable, bring it to an experienced employment law attorney.