It’s a business owner’s worst nightmare: an employee leaves to work for a competitor, and tucked into the boxes in which he’s packing his diplomas and photos are your customer lists and confidential information.
Enter a non-compete agreement, which prohibits the employee from working for a rival company for a specified amount of time after leaving your employ. Traditionally, employers have used non-compete agreements as tools to protect their interests with respect to high-level employees with specific skills and those with access to highly valuable information such as trade secrets and customer lists. But if the New York Attorney General’s recent string of investigations into non-competes is any indication, more and more employers are requiring low-wage, unskilled workers to sign on the dotted line.
In New York, enforceability of non-compete agreements has historically been a highly litigated area of the law. Courts will enforce only those non-compete agreements where the person received something of value (consideration) for the obligation and where the agreements are narrowly tailored and reasonable in terms of the length of time, geographic scope, restricted activities, and employer’s industry. The focus of a non-compete should always be to protect the business and not to unnecessarily and unreasonably restrict an employee. If a judge believes the agreement stands in the way of an employee being able to find a new job and support herself, it is unlikely to be enforced.
Against this backdrop of non-compete enforceability, the office of New York Attorney General Eric Schneiderman announced settlements this summer with several companies whose non-compete agreements were determined to be overly broad. One such settlement was with Law360, a legal news outlet, which had been requiring editorial employees at all levels to sign non-competes prohibiting them from working for the company’s direct competitors for a year after leaving the company. The settlement agreement does away with these mandatory non-competes, leaving in place those for only the most senior editorial employees deemed to have highly specialized skills.
With more investigations and settlements expected from the AG’s office regarding overly broad non-compete agreements, New York employers should take this opportunity to review their existing non-compete agreements and take stock of their hiring policies regarding such agreements.
Specifically, employers should considering doing away with blanket policies requiring all employees, regardless of skill and pay level, to sign non-competes. Instead, they should evaluate employees individually, assessing their access to proprietary information, whether they possess highly specialized skills critical to the role, and whether there is a legitimate and reasonable business interest in barring the employee from working for a competing company after he or she departs. If a non-compete agreement is in fact warranted, it should be narrowly tailored to maximize its enforceability.
Please contact us for assistance in reviewing your non-compete agreements or with any questions.