There are several key things that employers should consider when drafting non-compete agreements or clauses during the hiring and onboarding process of new employees. For instance, they could 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. However, when drafting these agreements or clauses, employers must 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.
To move this discussion forward, this blog post aims to review other key issues of consideration for employers when drafting and executing non-compete agreements.
The Blue Pencil Rule and Sufficient Consideration of Non-Competes
In the United States, the blue pencil doctrine is applied when a court wishes to delete, narrow, or modify a contractual provision or an unenforceable contract with the aim of enforcing whatever remains following the deletion, narrowing, or modification. Employers should understand that courts in New York may, commonly referred to as blue-pencilling in the legal arena, delete, narrow, or modify an unreasonable or overbroad restriction to make it enforceable. However, courts are also at will to decline the blue-pencilling of provisions and restrictions they deem to be overreaching.
Just like in other states, courts in New York will apply the law requiring an employer and an employee to have entered into an arrangement where either side provides something of value, noticeable and recognizable by courts. This gives rise to a doctrine known as “sufficient consideration.” Generally, an employment arrangement attains sufficient consideration when a restrictive covenant or a non-compete is signed at the start of employment. Importantly, if an employee remains with their employer for a period of time after signing the agreement or covenant or if termination is the alternative, then sufficient consideration can be attained through continued employment.
Finally, employers should be cognizant of what the law says when it comes to ensuring that, in accordance with the prevailing statutes, reasonable geographic and time(duration) have been provided and included in non-compete and restrictive covenants. Technically, while courts acknowledge that the level of an employer’s industry largely determines the reasonability of duration, the question of whether a restrictive covenant or non-compete agreement/clause includes a reasonable geographic scope or duration depends on whether a non-compete is overly broad. This goes without saying that the time(duration) when the employee is bound by the restriction or geographic area covered by the covenant should not be overly broad, as incorporated in the non-compete clause. Accordingly, a court will likely restrict an employer’s wish to enforce a non-compete agreement/clause or restriction should it find that such an agreement or restriction is overly broad or overreaching.
In Part XXVI of the series, we will, in our blog post titled “Forfeiture-for-Competition Provisions in Hiring & Onboarding New Hires,” we will move the discussion forward by looking into 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, and Publisher.