Understanding a Noncompete Clause

Employers are including noncompete language in employment contracts more often. What does that mean to you?

A recent article in The New York Times discusses the rising use of noncompete language in employment contracts. When an employee leaves the employ of a company, noncompete language prohibits him or her from sharing or using company information or training as defined under an employment contract.

Some key points about noncompete agreements include the following:

• Noncompete language included in an employment contract is also considered a restrictive covenant. When the agreement is signed, an employee agrees to prohibitions placed upon him or her by a former employer for a period of time.
• Restrictive covenants can protect an employer who has invested time and resources in an employee with special training, who has a critical relationship with certain clients, or who has access to trade secrets and other proprietary information.
• In a tight or sluggish economy, employers may use noncompete language beyond what is considered reasonable in order to reduce competition.

As noted in the Times article, noncompete agreements are becoming common. Rather than protect company secrets, the object of some restrictive covenants is simply to eliminate or reduce competition.

In New York, noncompete agreements are legal and enforceable. Despite this, a court may find the scope of an agreement — either in time or breadth — to be unreasonable. A court may choose to uphold the original agreement or modify the existing agreement.

For example, a noncompete term may be reduced from three years to six months. This leaves modified noncompete language intact and enforceable for a period of time.

If you are considering a job that requires a noncompete agreement in New York, talk to an experienced labor and employment law attorney before you sign on the bottom line.