According to a recent op-ed in the New York Times, some 30 million employees in the United States are currently operating under non-compete agreements. For those who don't know, employers use non-competes to prevent employees from working for a competitor following their departure from a company. Non-solicitation agreements - which are frequently used in conjunction with non-competes, limit the ability of employees to solicit customers (and employees) of the company after their departure.
Non-compete agreements operate in a very contentious space. One the one hand employers deem them necessary to protect their interests and confidential information, and on the other employees see them as attempting to limit their ability to work. Both can be right.
The problem with non-competes and non-solicitation agreements from a legal perspective is when they are applied to employees in what would be considered lower level positions within a company. These employees often find themselves burdened by non-compete agreements, even where they are not in positions of significant responsibility or in which they would have access to confidential information. Courts in New York, as well as the New York State Attorney General, have generally taken a hard line on non-compete agreements in this context, the theory being that they are unfairly harsh on employees who are really no danger to the company.
Other states have taken an even more aggressive position, with California leading the way and banning non-compete agreements entirely. New York has not yet taken such a hard line against non-compete agreements, but it would not be surprising to see the state move closer to California as time goes on.
Employees faced with non-compete agreements often challenge them in a number of ways. These including a challenge based upon the geographic scope of the agreement - if it covers a large area a court is more likely to determine that it is unfair and not enforceable. Non-competes are also often challenged on their duration. Courts in New York routinely find that 18 month non-competes are permissible, but when they run into 2, 3, 4 or more years, the employer could have a problem with enforcement. Finally, non-competes are often challenged where an employee is laid off from a position, rather than resigning. In this case the employee takes the position that it is simply not fair for an employer to lay an employee off and at the same time tell them that they cannot work for a certain period of time. Courts tend to agree with this.
We routinely review non-compete and severance agreements, so if you have questions contact us today.