If you are an employee or an employer in New York City, you may have encountered or used a non-compete clause in your employment contract. Non-compete clauses are often used to protect an employer’s trade secrets, confidential information or specialized skills that an employee gained on the job. But, are non-compete clauses still legal in New York City? The answer is not so simple. Non-compete clauses are not banned, but they are subject to strict judicial scrutiny and may be unenforceable if they are unreasonable or unnecessary.
What makes a non-compete clause enforceable?
According to the New York State Attorney General, a non-compete clause is only allowed and enforceable to the extent that it complies with state law and New York common law. It must be necessary to protect the employer’s legitimate interests, and it must be reasonable in time restriction and in geographic scope. However, the non-compete clause cannot impose an undue hardship on the employee or cause harm to the public.
What is a legitimate interest?
An employer may want to protecting its trade secrets, confidential information or preventing employees from leaving with specialized skills. However, a non-compete clause cannot be used to prevent ordinary competition or to restrict an employee’s mobility or career advancement.
Cannot be overly broad
A non-compete clause’s restrictions must be no greater than necessary to protect the legitimate interests of the employer. There is no bright-line rule on this, and as a result, courts consider the employee’s job duties, the employer’s business interest and the language of the agreement.
Enforcement and modification
A court will not enforce a non-compete clause unless it determines that it meets the required criteria. Judges can also modify or invalidate a non-compete clause if it finds that some parts of it are unreasonable, such as the non-compete effective length of time or the geographic area it covers.
Recent developments in New York City
In June 2023, the New York City Council introduced a bill to ban non-compete clauses for employees earning less than $75,000 per year, but it has not been enacted yet. Though, New York State does prohibit non-compete clauses for broadcast industry employees. This is currently, the only broad ban on non-compete clauses in New York.