Understanding Non-Compete Provisions

on April 28, 2014 by James Hunt

You have worked hard to build your business over the years. And during that time, you have grown your clientele and customer lists. You hired employees to help make your business successful. Now, however, one of your key employees has decided to quit and start a competing business. Thankfully, you had a non-compete provision in the employee’s contract. But how can that contract be enforced?

Jim hunt picThe first step in determining whether a non-compete is enforceable is to determine if the provision is necessary to protect a legitimate interest. In other words, the provision must not simply be in the agreement to discourage employees from leaving, but, instead, is there to actually ensure the business is not harmed by the employee leaving. Once that threshold is reached, the non-compete needs to be examined to ensure its duration, geographic scope, and scope of restricted activities are reasonable. Under New York law, these agreements “will be enforced only if reasonably limited temporally and geographically, and then only to the extent necessary to protect the employer from unfair competition which stems from the employee’s use or disclosure of trade secrets or confidential customer lists.” Reasonableness looks at the specifics of each case.

A reasonable time limit of a restrictive covenant varies depending on the nature of the business involved. For example, a two-year non-compete clause may be reasonable in the context of a professional training course, but not reasonable for a commissioned salesman.

Assuming the duration is reasonable, the next question is whether the geographic scope is reasonable. Generally, a territory restriction will be held reasonable if it matches with the employer’s business territory. In other words, a national non-compete provision would be unreasonable where the employer only did business within New York.

The final factor is whether the scope of the non-competing activities is reasonable. Usually, a provision prohibiting the solicitation of a former employer’s customers is likely enforceable to the extent necessary to prevent the employee from competitive use of client relationships developed during the course of employment. However, an agreement prohibits contact with “prospective” customers is unenforceable as a matter of law because “it does no more than baldly restrain competition.”

Slater, Tenaglia, Fritz & Hunt, P.A.’s lawyers can help. Most of the time, a simple cease and desist letter can resolve the issue. If that is not successful, then a lawsuit can be filed seeking to enforce the non-compete contract. Our attorneys will vigorously represent your interests to protect your business.

The attorneys at Slater, Tenaglia, Fritz & Hunt, P.A., provide clients with experienced legal representation. We handle many types of business disputes on behalf of corporate clients, including Fortune 500 Corporations and individuals throughout New York, New Jersey, Pennsylvania and nationally. Our attorneys handle cases from pre-litigation negotiations through litigation to obtaining and enforcing judgments. If you need assistance, or are interested in learning more, please contact us by phone at (201) 820-6001 in New Jersey or (212) 692-0200 in New York. We can also be found on Facebook, Linkedin, Twitter, Google+, Youtube and the Internet. All initial consultations are free of charge.