EMPLOYER/EMPLOYEE RELATIONSHIPS ARE LIKE DATING? THE DIRTY LITTLE SECRET OF RESTRICTIVE COVENANTS

When someone is starting out in a new job, one of the last things on his mind is what happens if and when things don’t work out with that employer. Things are all shiny and new, and most people have every hope that the relationship might be lasting. Sounds kind of like dating or marriage, doesn’t it? In a way, it is. The reality is that sometimes things can go horribly wrong in an employer/employee relationship, just like in a personal relationship. When that happens, the question often becomes one of can you just walk away with no further strings attached as you so desperately want to do, or are you somehow still bound to that person with obligations that you just can’t shake? Whether it’s because of a child that you’ve had together or some kind of restrictive agreement that you’ve entered into with your employer, sometimes relationships aren’t that easy to just cast aside.

Today I’ll leave the personal relationship advice to the experts (you go, Dr Phil!), and focus on something that many people face and don’t even realize. While hardly something that every employee needs to worry about it, I direct this article to professionals and/or uniquely talented individuals who were asked to sign a non-competition agreement as a condition of their employment in New York State.

What is a non-competition agreement you might ask? At its most basic level, a non-compete agreement is a contract which restricts an individual’s employment opportunities for a certain period of time and within a certain radius of his current employment following the termination of that relationship. Non-competes often have an additional restrictive condition included which prevents an employee from starting a competing business within a certain period of time following his departure from his employer.

There are no statutes or regulations controlling non-competes within the State, but case law clearly tells us that New York courts generally disfavor such agreements and hold them against public policy. They are viewed are unreasonable restraints on trade and employment. New York typically stand for the proposition that individuals have a right to work, and that right will not unreasonably be infringed upon. Even so, you nonetheless need to understand that your particular non-compete agreement may still be enforceable.

The enforceability of a non-compete agreement comes down to an analysis of one simple, or rather not so simple, word: reasonableness. Reasonableness is the standard by which non-competes live or die, and that reasonableness is evaluated on a case by case basis. It falls on the party seeking to enforce the agreement to demonstrate that measure. Without going into gory and gruesomely boring detail, individuals seeking to enforce a non-compete do have some practical guidance for understanding what amounts to reasonableness.

Courts look to a number of different factors in assessing whether an agreement should stand or be set aside. They include:

(1) An assessment of whether the agreement imposes a restriction that is no greater than necessary to protect an employer’s legitimate protectable interests;
(2) An assessment of whether the agreement imposes an undue hardship on the employee;
(3) An assessment of whether the agreement causes harm to the general public; and
(4) An assessment of whether the agreement is reasonable both in terms of duration and geographic scope.

There’s no bright line answer to assess these measures, as each has to be considered based on each cases unique circumstances. Typical interests, however, that the Court is inclined to protect on behalf of an employer include: potential damage to the business’ trade secrets or confidential information; damage to the business’ goodwill; or to prevent the employer from losing an employee to a competitor whose skills are special, unique or extraordinary that the business would be damaged. Even if some or all of these criteria are met, the court still needs to assess the reasonableness of the agreement in terms of the other restrictions it places upon an individual. This assessment may result in the agreement being wholly enforced or struck down, either in part or in whole. The court exercises a measure of control that enables it to re-write an agreement to make it reasonable if an employer’s interests are truly at risk.

In the event that an employer does seek to enforce a restrictive agreement, it will likely be seeking both an injunction to prevent the arguably prohibited behavior and monetary damages to compensate for the lost profits that it would presumably suffer because of the breach. In light of the fact that these agreements are generally disfavored by the courts, employers need to truly assess with counsel whether they have a legitimate grievance that would justify the time and expense that would be incurred to try and enforce the agreement. Sometimes the answer to that question is an unqualified yes; depending on the skill set and supposed uniqueness of your breaching employee though, I’d urge you to assess that decision well.

By way of bringing this article full circle, I think it goes without saying that employer/employee relationships, just like personal ones, sometimes go wrong. When they do, it’s my hope that you originally entered into the relationship with eyes wide open as to what you bargained for. If you are an employee subject to a non-compete, always know your rights and consult with counsel if you think an agreement might unreasonably infringe upon your livelihood. If you are an employer, I would urge you not to willy-nilly have all of your employees sign a non-compete, but understand when and how they should properly be used.