Many companies are concerned with the safety of their data and are trying to protect their important resources from being used by former employees when working for competing firms. For such purposes in New York, it is allowed to use the Non-compete agreement.
In our article, we will not only analyze this concept but also provide information on how to draw up this document so that it does not violate the employee's rights and the court interprets it in favor of the employer.
What Is a Non-Compete Agreement
This is a type of contract between an employee and an employer, the purpose of which is to restrict the employee's work after they leave for competing firms. The document can also be signed between the customer and third-party contractors.
The idea is to restrict employees from using confidential company information when working for direct competitors for a specific time and in a specific geographic area.
The agreement contains written promises of employees not to engage in work for competitors and not to use confidential data (such as customer databases or secret formulas).
It is very important to draw up a document clearly and correctly while not infringing upon the rights of employees. Otherwise, the New York State Court will not accept the document and decide in favor of the employee. We will tell you a little below about what rules to adhere to if you want to draw up such a document.
What Should This Form Contain
There are no general laws in New York that govern this document (industry-specific laws are possible). However, there are non-compete agreement templates that can be used as an example of such a document.
Typically the form contains:
- Indication of the parties to the agreement
- Purpose of the form
- List of non-compete terms (business practices, clients base, general competition, specific competition)
- The time period of the agreement
- Indication of the geographical area of the agreement
- Purchase option (or lack of it)
Restrictions to Use This Forms in New York
The use of this type of agreement depends on the industry in which it is intended to be applied. For instance, in the financial industry, such agreements are prohibited in New York. According to New York, Labor Law §202-k non-competes are also prohibited in the broadcast industry. The same rule exists for lawyers — you cannot prevent them from practicing (Rule 5.6 of the New York Rules of Professional Conduct).
In general, the document should not violate the rights of the employee and limit their capabilities too much. The form should not create undue difficulties for the employee's future work. Moreover, it should not harm society.
All provisions of the agreement must be reasonable and must be limited in time and geographic area of application. The document can only be used to protect the interests of the company within reasonable legal limits.
How to Create a Non-Сompete Agreement
Here we will tell you about the stages of drawing up a document.1. Study the Competitors
First, you need to go through the preparatory stage. Carefully study the competing companies near you. Your direct competitors are those firms that produce similar or identical products or services. This is necessary to understand with which companies you may have conflicts of interest and how these conflicts can be expressed.2. Write a Draft Document
Create an agreement using one of the services. Consider the specifics of your company and adapt the provisions to suit your needs.3. Submit Your Document to a Lawyer
Non-competition agreements are a very delicate issue. Courts in New York often side with the employee in such cases. Therefore, your form must be drawn up carefully and efficiently. Only a qualified lawyer can help you with many of the nuances of such an issue. It is better to contact a specialist not only experienced in this type of agreement but also with successful cases in your industry.4. Transfer the Agreement to the Employee
Give the agreement to the employee so they can review the document. Give them enough time for this. So that in the future, the employee cannot present to the court that they did not have the opportunity to carefully study the document and make an informed decision before signing it.5. Sign the Document
If both parties agree to the conditions and believe that the form is drawn up fairly, then you can put signatures. Sign multiple copies of the document so that each side has its own one.
Now, as promised, we will consider the factors on which, in the case of a court case, the court will make a decision.
Criteria a Document Must Meet
For a New York State court to accept such an agreement, it must meet the following criteria:
- Be reasonable
- Be adequately reviewed
- Have a limited volume
- Protect interests
- Do not cause undue hardship and/or public injuries
- Avoid violation
Let's take a closer look at each of these points.
New York State courts like to pay attention to the “reasonableness” of a document. But what is hidden behind this concept? Concerning our form, this means that it:
- Should not contain more conditions than are required to protect the legitimate interests of the employing company
- Does not create excessive obstacles for the employee in later life and work
- Doesn't harm society
There is an exception to this concept — the “employee choice doctrine.” This applies when an employee leaves voluntarily and has a choice: to work for a competitor but refuse the benefits of the company or not to work for a competitor and accept benefits. Benefits mean the payment of benefits at the end of employment.
An employer cannot force an employee to sign such an agreement already in the course of their work or after they have been hired. Such a document is signed:
- Before hiring an employee, all conditions must be voiced before the employee accepts a job offer.
- When continuing to hire an employee when the alternative was voluntary, leaving
- When promoting an employee to a new position.
All conditions outlined in the document must be limited in time and geography of application. Typically, New York courts accept limits of 6 months. But it is also possible to compensate for the expansion of one limitation by the narrowness of the other.
Let's give an example. If a company has entered into a three-year contract for a rare product supply with limited demand, it is possible to draw up an agreement for this period, but only in a very narrow geographic area. But the same agreement for a shorter period, but without specifying the geographic area, may not be accepted by the New York court.
The court considers it inadmissible to agree without specifying a specific place of application since this greatly complicates the life of the employee. In this case, it is possible to indicate rather wide geographical areas. The court may accept a broad geographic limit if it is balanced by a time limit.
For instance, a company may prohibit an employee from competing in New York, Chicago, London, and even Europe if the period is no more than six months, and the employee is paid a base salary for this period.
Protection of Interests
So what do the New York courts interpret as “legitimate business interests”? This means:
- Employer's reputation in the market
- Confidential information or trade secrets
- Interest in preventing competition with an employee providing unique or special services
Lack of Unjustified Difficulties and Public Injuries
Above, we have already given several examples of creating unnecessary difficulties for an employee. You can also add unjustified dismissal to them. Such an event immediately cancels the agreement.
As for the public injuries, this can be interpreted from the side of concern for public policy. If the agreement prohibits an employee from using skills and knowledge that are useful to society and the state, then the court is unlikely to accept such a document.
Employers should understand that when hiring, they should check if their prospective employee has a similar agreement with a competitor.
There are several options for avoiding violating the non-competition provision:
- May put the new employee on immediate garden leave, that is, pay salaries, but not allow them to perform duties.
- It is possible to impose time limits on the duties of an employee.
Advantages and Disadvantages of Non-compete Agreements
We will consider these indicators from two sides — the employee and the employer.
The Employee Perspective
The advantages of such a document:
- Willingness to sign an agreement can add a few points to your candidacy at a job interview.
- Some agreements provide for the payment of a bonus to an employee for not competing.
- In the event of a sudden dismissal, this agreement will most likely not be valid.
- You can negotiate the terms of the agreement before signing
- If the agreement is found unreasonable, you can claim compensation.
The disadvantages of an employee signing an agreement:
- Difficulties in finding further work
- Additional costs if you seek legal advice or help
The Employer Perspective
- Lack of competition from former unique employees of the company
- For a certain period, you protect the company's trade secrets
- Protecting your investment in employee training
- Reduces the likelihood of voluntary employee leaving
There are also negative sides:
- The number of valuable applicants is decreasing, as some will not be ready for such restrictions.
- Risk of litigation increases
- With illiterate drafting of the agreement, former employees have a high chance of winning in court.
Thus, it is worth weighing the pros and cons for each specific situation and adhering to the principles of honesty concerning the employee and the organization.
What To Do If You Think You Have Signed An Unreasonable Non-compete?
First of all, it is best to try to avoid such a situation. Before accepting a new job offer, it is best to check with the potential employer if such agreements exist for your position. Before signing, carefully study the document, ask clarifying questions. Remember that this is also a contract and if you are not satisfied with certain conditions, you can negotiate.
If you have already signed such an agreement and decided to leave your place of work, then think about what impact this may have on your new employment. Seek advice from the attorney.
If you think the agreement is not fair to you and contains unreasonable terms, then you can contact the Labor Bureau of the Office of the New York Attorney General. You can visit their website: https://ag.ny.gov/bureau/labor-bureau. You can also send an e-mail to email@example.com; or call at 212-416-8700.