Finance professionals, executives, sales people, pharmaceutical professionals, information technology professionals, and others today face an increased number of employer-issued restrictions on their right to continue working after they leave their job. For employees, these provisions, often called “non-competes” can have devastating consequences. Read to the letter, these provisions may purport to stop employees from working in the same field or with the same customers for months or even a year and may extend in geographic scope across large swaths of the globe. Some employers may even seek to apply the provisions after an employee’s wrongful termination.
For an employee, abiding by the letter of these agreements could mean no pay for that entire period. But employees should know that New York law restricts the reach of non-competes, and many are not actually enforceable.
Do I Have Non-Compete?
Many employees are so elated to start a new job that they never contemplate the day that they will leave. On the first day of work, the non-compete is buried in a rash of first-day paperwork, and the employee may not even realize its scope.
In reality, the term “non-compete” may be something of a misnomer. Many employment agreements contain provisions that attempt to restrict an employee’s right to do any number of activities after leaving, such as:
- To work within a certain distance of the former employer;
- To work in the field of the given employer, such as advertising, consulting, finance, or fashion;
- To solicit any current or prospective client of the employer; or
- To solicit any person with whom the employee has worked to join the employee at a subsequent employer.
Is My Non-Compete Enforceable?
Taken together, these restrictions can have a devastating impact on an employee’s ability to make a living. New York courts, however, have recognized this burden and have generally ruled that any such restrictions must be reasonable. This reasonableness requirement extends to:
- Time: Courts ask whether the length of the non-compete is reasonable to protect the employer’s legitimate interests.
- Geography: Courts ask whether the restrictions extend beyond the geographic scope in which the current employer operates.
- Scope of work prohibited: Courts consider the scope of work that the employer does and the kind of work that the employee does. If an employee does unique work and has access to an employer’s trade secrets, a non-compete is more likely to be valid, but if an employee is “rank-and-file,” then a non-compete is unlikely to be enforceable.
Nonetheless, the employer’s rights under these agreements do not automatically trump those of the employee: Courts also weigh the harm to the public and the burden on the employee in restricting her ability to earn a livelihood. And, taken as a whole, New York’s reasonableness requirement casts doubt on the non-competes issued by many employers. See generally, Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y.2d 303 (N.Y. 1976).
Special Considerations for Lawyers and Doctors
Lawyers, doctors, accountants, and other learned professions often have additional ethical considerations that may influence their ability to sign non-competes as well as the enforceability of those agreements.
In New York, for example, Rule 5.6(a) of the Code of Professional Responsibility generally prohibits lawyers from making an agreement that would “restrict the right of a lawyer to practice after termination of the relationship” and from entering “an agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy.” In other words, lawyers cannot agree to non-competes. Courts in New York therefore “apply a per se rule of nonenforcement.” Oak Orchard Cmty. Health Ctr. v. Blasco, 8 Misc. 3d 927, 931 (N.Y. Sup. Ct. 2005).
Likewise, the American Medical Association’s “Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, a partnership, or a corporate agreement.” AMA Code of Medical Ethics, Ops on Professional Rights and Responsibilities, Policy No. E-9.02. Court have not interpreted “discouragement” to reach an outright ban, but such agreements are clearly disfavored.
Every Non-Compete Is Different
In sum, not every non-compete is enforceable—no matter what your employer says. If you are considering entering such an agreement or staying in your job because of one, you should consult an employment lawyer first to determine whether the agreement will be enforceable or whether you can live with it.
Indeed, faced with the prospect of powerful civil litigation lawyers on the other side, many employers will simply fold, rather than risk having these agreements invalidated.