Navigating issues related to restrictive covenants in the employment relationship, P.1

For businesses, protecting intellectual property and trade secrets is an important task to ensure valuable creations and business information does not unfairly benefit other companies. There are different tools and strategies businesses can use to protect themselves, including patents, copyrights, and trademarks, as well as trade secret enforcement.

Another important tool is the use of restrictive covenants. These can come in different forms, including agreements to keep information confidential, to refrain from solicitation, and agreements not to compete. In any case, the aim is to protect the business from the loss of valuable resources to competitors. While businesses can certainly benefit from the use of restrictive covenants, employees do not.

It is typically when an employee breaches a restrictive covenant in beginning work with an competitor that these agreements are disputed in court, with employers seeking enforcement and damages and employees seeking to have the agreement struck down. What exactly determines the enforceability of restrictive covenants, though?

New York public policy is generally against restrictions on the free conduct of business, trade and commerce, but there are certain exceptions. Covenants not to compete are enforceable to the extent that they meet certain conditions. They must be reasonable as to the length of time they restrict an employee’s ability to compete. They must also be reasonable with regard to the geographic area in which they restrict the employee’s ability to compete.

Generally, an employment agreement not to compete will be enforced to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee; the protection of an employer's legitimate interests is limited to the protection of an employer's trade secrets or confidential customer lists, or protection from an employee whose services are unique or extraordinary.

In our next post, we’ll say a bit more about restrictive covenants, and how an experienced attorney can help both employers and employees protect their rights and interests with respect to non-compete agreements.

Source: McKinney’s General Business Law § 340

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