What should employers consider when executing restrictive covenants? In order to prevent employees, following employment separation, from soliciting other employees to leave the business, soliciting clients/customers, misappropriating a company’s confidential information or trade secrets, or working for a competitor, employers need to execute restrictive covenants with new hires. Most importantly, they need to seek expert advice on how to draft restrictive covenants and the legal implications of doing the same.
To move this discussion forward, this blog post seeks to review the various things employers should consider when drafting non-compete agreements or clauses during the process of hiring and onboarding new employees.
New York Labor & Employment Laws on Drafting Non-Compete Agreements during New Employee Hiring & Onboarding
Employers can use non-compete agreements or clauses when seeking to prevent former employees from misappropriating or stealing trade secrets, proprietary, or confidential information, and/or using such information to benefit the new employer. Accordingly, in a non-compete agreement, an employer and employee generally agree that the latter shall not start a similar trade or profession or work for another employer (a competitor) in competition against the former employer. Thus, an employee’s ability to work for a competing or rival employer is restricted.
Employers must understand that when drafting these agreements or clauses, it is crucial for employers to understand that in New York, non-competes will typically only be enforced by courts to the degree necessary if the services provided by the employee are extraordinary or unique, or to restrict and deter a former employee from taking part in unfair competition by misappropriating, using, or disclosing confidential information or trade secrets.
However, employers should be careful when relying on the “extraordinary and unique services” doctrine despite the probability of this being enforced by courts. This is because, despite the existence of a few recent lawsuits in which restrictive covenants have been enforced based on the “extraordinary and unique services” doctrine, the unique employee exception is rarely relied on by courts when determining the enforcement of non-compete clauses.
Employers should also bear in mind that a non-compete agreement or clause should describe (1) the length of time the employee will be subject to and bound by the restriction, (2) the geographic area that the non-compete covers, and (3) the type of business/economic activities that the employee is restricted from taking part.
One key thing to note is that New York courts generally bar employers who engage in material breach of an employment contract from enforcing restrictions incorporated in the breached contract. Notably, the enforcement of a non-compete agreement will not necessarily be barred in cases when an employer initiates termination. However, courts will also consider the rationale under which the termination was initiated by the employer.
In Part XXIV of the series, we will, in a short blog post titled “Blue Pencil Rule and Consideration of Non-Competes,” hammer on other key issues of consideration for employers when drafting and executing non-compete agreements.
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, & Publisher.
