Non-Compete Agreements In New York
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| H/T to Trade Secrets Law for the funny cartoon! |
Having represented businesses that have sued independent contractors to protect the misuse of the business's proprietary information, I recognize the importance of drafting a proper non-compete agreement in New York.
The company I represented was suing a former independent contractor who was improperly misappropriating the company's trade secrets and using that proprietary information to tortiously interfere with my client's business. The evidence tended to prove that the independent contractor was moving the business's customers to the independent contractor's newly formed company which then provided the exact same services as my client, but for a lower price.
It was clearly an underhanded tactic. Litigating this matter taught my client a lot about the pitfalls of protecting the trade secrets of their business, including what constitutes a trade secret and how business relationships can inadvertently develop in the course of the contracted relationship.
Whether a customer list constitutes a trade secret or is readily ascertainable from public sources is usually an issue of fact1. So it is important to distinguish between the two. In many cases, the independent contractor agreement also creates an agency relationship between the business and the independent contractor2. A principal-agent relationship may be established by evidence of the "consent of one person to allow another to act on his or her behalf and subject to his or her control, and consent by the other so to act." An agent is a party who acts on behalf of the principal with the latter's express, implied, or apparent authority3.
Ultimately, the facts in my client's case fell heavily in their favor. My client prevailed on the Defendant's summary judgment motion and soon settled with the offending independent contractor for a significant sum of money. But, the years lost to litigation highlights the need to properly draft non-compete agreements between parties.
Ultimately, the facts in my client's case fell heavily in their favor. My client prevailed on the Defendant's summary judgment motion and soon settled with the offending independent contractor for a significant sum of money. But, the years lost to litigation highlights the need to properly draft non-compete agreements between parties.
Here is a blog post I wrote back in November of 2016 on this issue.
The validity of a non-compete agreement in New York is measured in light of relevant principles and the particular facts and circumstances of your business's situation.
Non-compete clauses are commonly found in employment agreements across many industries regardless of size or products / services offered. They impose restrictions on future employment of key employees within a defined geographic area for a competitive business within a reasonable period of time after employment in your NY business ends. The validity of a specific non-compete clause is taken on a case-by-case basis. Those agreements are considered "reasonable" when:
• The clause / agreement is no broader than is required to protect the NY business's legitimate interests, such as confidential information, trade secrets, or preventing loss of key employees to competitors;
• The clause / agreement does not unduly burden the employee;
• The clause / agreement does not injure the public;
• The clause / agreement is not for an unreasonable duration of time (typically 6 months or less is considered reasonable); or
• The clause / agreement has a reasonable geographic scope.
If a contracted party breaks your non-compete clause or agreement, your NY business has two options to pursue in Court. A NY business can (a) seek an injunction via an Order to Show Cause to enforce the non-compete clause and prevent the employee from engaging in the behavior at issue, or (b) seek money damages, should the behavior at issue result in loss of profits to your business.
When presented with such matters, courts have been known to modify terms, or "blue pencil" clauses and agreements based upon their own sensibilities and what it considers fair and reasonable.
Because of this subjective nature, it is imperative that you consult an attorney so that you can analyze what positions in your NY business are key to your operation, what interests and information must be protected, and the best way to craft your non-compete clause or agreement.
Creating a valid non-compete agreement for your NY business protects your business interests and prevents loss of profits.
If you require further guidance on non-compete agreements or other aspects of business planning so that you can avoid the litigation that my client experienced, I am happy to discuss your specific matter with you.
. SOURCES
1 Suburban Graphics Supply Corp. v. Nagle, 5 AD3d 663, 774 N.Y.S.2d 160 (2d Dept 2004)↩
2 Barber v Actknowledge, Inc., 24 Misc 3d 1211[A], 1211A, 2009 NY Slip Op 51419[U], (Sup Ct, Kings County 2009)↩
3 Time Warner City Cable v Adelphi Univ., 27 AD3d 551, 552 (2d Dept 2006); see also: Maurillo v Park Slope U-Haul, 194 AD2d 142, 146, 606 NYS2d 243 (2d Dept. 1993); Art Fin. Partners, LLC v Christie's Inc., 58 AD3d 469, 471, 870 N.Y.S.2d 331 (1st Dept 2009); Dynas v Nagowski, 307 AD2d 144, 147-148, 762 NYS2d 745 (4d Dept. 2003).↩
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