Generally, “blue penciling” and “sufficient consideration” are key concepts of critical importance for employers when drafting restrictive covenants and entering into non-compete agreements. Regarding the first concept, employers should understand that courts in New York may, commonly referred to as blue-penciling in the legal arena, delete, narrow, or modify an unreasonable or overbroad restriction to make it enforceable. However, courts may also, at will, decline the blue-penciling of provisions and restrictions they deem to be overreaching. Concerning the second concept, while the law in New York requires an employer and an employee to have entered into an arrangement where either side provides something of value noticeable and recognizable by courts, an employment arrangement attains sufficient consideration when a restrictive covenant or a non-compete is signed at the start of employment.
In this blog post, we will discuss the provision of “forfeiture-for-competition” – another key concept of consideration for employers and employees during the process of hiring and onboarding.
Forfeiture-for-Competition in Hiring & Onboarding New Employees
Forfeiture-for-competition is another key employment provision permissible under the law that significantly impacts non-compete agreements and restrictive covenants between employers and employees. Through the provision of forfeiture-for-competition, employees are given a choice: retain employment benefits by staying with the employer or forfeit a prospective benefit by competing with the employer.
Ideally, there are several things that employers should understand when it comes to this provision. Firstly, competition is not prohibited through the provision of forfeiture-for-competition. Secondly, this provision provides employees with a choice, as mentioned above. Thirdly, as long as the employer can show that the employee was discharged with an identifiable cause or that the employer was willing to employ the employee who agreed not to compete, the provision is enforced by courts irrespective of its reasonableness. Finally, given the eligibility of an employee to be provided with compensation following the termination of employment, then the provision of forfeiture-for-competition might be a consideration for an employer.
In Part XXVI of this series, we will, in our blog post titled “Considerations when Drafting & Enforcing Non-solicitation Clauses,” hammer on other key issues of consideration for employers when drafting and enforcing non-solicitation clauses.
As usual, stay tuned for more legal guidance, training, and education. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always Rising Above the Bar,
Isaac T.,
Legal Writer, Author, and Publisher.