What is a Non-Compete?
As all of our readers are undoubtedly well aware, a non-compete is a provision that many employers include in employment and separation agreements. It is a type of restrictive covenant used to prevent a former employee from working for a competitor or otherwise rendering competitive services after the cessation of his or her employment for a fixed period of time in a designated geographic area.
When are Non-Competes Enforceable?
Although no New York statute or regulation govern non-competes in connection with employment, New York courts generally disfavor non-compete provisions due to their potential to restrain competition and restrict an employee’s ability to make a living.1 However, New York courts will generally enforce such provisions to the extent that they are deemed to be reasonable in scope, duration, and geography.
More specifically, in acknowledgement of an employer’s need to protect itself from unfair competition by former employees, New York courts will enforce non-compete provisions where those provisions are found to:
- Impose no greater restrictions than necessary to protect the former employer’s legitimate protectable interests;
- Be reasonably limited in duration and geographic scope; and
- Not cause injury to the general public and not be unreasonably burdensome to the employee.2
Former Employer’s Legitimate Protectable Interests
In New York, a former employer’s legitimate protectable interests include:3
- Protection of trade secrets;
- Protection of confidential customer information;
- Protection of the employer’s client base; and
- Protection against irreparable harm where the employee’s services are special, unique, or extraordinary.
The latter category is less frequently invoked by employers since it is very difficult to prove that an employee rendered unique services that cannot easily be replaced.4
Scope of Restrictions
If a New York court determines that a non-compete is necessary to protect a legitimate interest, it will then examine the following three factors:
1. Geographic Scope of the Restriction.
New York courts generally conduct a fact-based analysis to determine if a geographic restriction in a non-compete provision is reasonable, but the non-compete is not necessarily unenforceable merely because it lacks a geographic restriction. Courts are more likely to find a broad geographic restriction reasonable if it only applies for a short temporal period. For example, in in Interga Optics, Inc v. Nash, a Northern District of New York Judge stated that “[e]ven if the geographic scope were found to be somewhat broad (due to the evidence that the vast majority of Plaintiff’s current clients appear to be limited to North and South America), the restriction is tempered by the brief duration of it.”5
In contrast, in Magtoles v. United Staffing Registry, Inc., the Eastern District Court, while finding a non-compete clause unenforceable for several reasons, concluded that a clause was doomed based on “the sheer nationwide breadth of the geographic scope alone.” Because the former employer, a staffing agency, only placed nurses at facilities in New York City and Long Island and the agency had never placed a nurse anywhere outside the state, the non-compete clause preventing the plaintiffs from participating in any business within the United States that would be in competition with the employer was “baldly unreasonable.”6
2. Duration of the Restriction.
Like the geographic limitation, the analysis with regard to duration is conducted on a case-by-case basis. Although non-compete provisions of a relatively short duration are generally favored, and non-compete provisions of less than six months have almost always been upheld by New York courts,7 New York courts have found certain non-compete provisions with long temporal periods reasonable in light of other circumstances.
In one case, a New York court upheld a five-year non-compete clause, finding it not to be overbroad due to the context of the transaction at issue, i.e., the sale of a business. Because the defendant sold his investment brokerage and advisory business for a significant sum, his agreement to not work for a competitor for five years during which he would be paid substantial additional consideration was found to be a reasonable restraint.8
3. Scope of the Business Activity Impacted.
New York courts will not enforce a non-compete provision where the scope of the business activity impacted is deemed to be too broad or it is not shown to be necessary to protect trade secrets, other confidential information such as customer lists, or competition by a former employee whose services are unique or extraordinary.9
For example, in JLM Couture, Inc. v. Gutman, the Second Circuit upheld a non-compete agreement that prevented a designer from competing with her employer, which included a prohibition on the designer using the “designer’s name” in trade or commerce. Due to the Court’s finding that the designer’s services to the employee were “special, unique, or extraordinary,” the Court relied on New York case law recognizing the availability of injunctive relief where a non-compete is both reasonable and the employee’s services are unique.10
Some New York courts have indicated that modification, or partial enforcement of overly broad non-compete clauses may be preferable to invalidation when the unenforceable portion is not essential to the agreement and the former employer has acted in good faith to protect a legitimate business interest without overreaching.11
Other Factors and Situations Considered by New York Courts
Sale of a Business
Non-compete provisions associated with the sale of a business are more likely to be considered reasonable and thus enforceable in New York where they: (i) protect the goodwill that the buyer has purchased, preventing the seller from recapturing the goodwill to compete with the buyer; (ii) enabled the former owner to extract a higher price in the sale to compensate him or her for the goodwill which he or she may have spent years creating; and (iii) resulted from negotiations between parties which had comparable bargaining power.12 Courts reason that restrictive covenants in employment agreements, where the parties generally do not have equal bargaining power, necessarily require a more rigorous examination than restrictive covenants in ordinary commercial agreements like the sale of a business and accord more deference to parties’ freedom to contract in such commercial contexts.13
For example, the Second Department enforced a covenant not to compete which was included in an agreement for the plaintiff to purchase a law practice from the defendant. The covenant not to compete prohibited the defendant from practicing law within a 15-mile radius of the sold office for a five-year period. After the defendant continued to practice law within the geographic scope of the non-compete despite a court order, the Second Department granted the plaintiff’s motion to hold the defendant in civil contempt.14
Termination Without Cause
When the employment of an employee subject to a non-compete provision is terminated without cause, the non-compete clause is more likely to be deemed unenforceable by New York courts. Such courts have often viewed enforcing the provision to be unconscionable on the grounds that the employer’s willingness to employ the party agreeing not to compete if he or she resigns or is terminated with cause is an essential aspect of enforceable restraints on employee mobility.15
Although the New York Court of Appeals has not categorically held that termination without cause automatically renders a non-compete unenforceable, in Morris v. Schroder Capital Management International, the Court considered the case of when an employer conditions post-employment benefits on compliance with a restrictive covenant, giving the employee the choice between not competing and preserving their benefits or competing and forfeiting the benefits. The Court held that, when an employee is terminated without cause in that context, the employer may only enforce the non-compete if it is deemed reasonable.
Although Morris did not settle whether a discharge without cause invalidates an employee non-compete provision generally, judges in the First and Second Departments have broadly interpreted New York Court of Appeals decisions on the issue, holding that non-compete clauses are generally not enforceable when an employee has been terminated without cause.16
In two cases, judges in the United States District Court for the Southern District of New York considered whether non-compete provisions should be enforced where former employees were allegedly terminated without cause. The judge in one of those cases enforced the non-compete provisions because he was not persuaded that the former employees had actually been terminated without cause and in the other because the issue of whether the termination was without cause was irrelevant.
In Beirne Wealth Consulting Servs., LLC v. Englebert,17 the relationship between the employees and employer had deteriorated beyond repair. After they were terminated, the defendants argued that the restrictive covenants in their employment agreements were not binding because they were terminated without cause. However, the Court disagreed that the former employees had been terminated without cause and enforced the non-compete provisions.
In the other case, Kelley-Hilton v. Sterling Infosystems Inc,18 the plaintiff, a former employee, claimed she was wrongfully terminated by the defendant. The plaintiff moved for a preliminary injunction preventing her former employer from enforcing any contractual provisions that would prohibit her from competing with it, soliciting its customers, or hiring its employees. The Court noted that, under New York law, “contractual forfeitures of postemployment benefits are per se enforceable for a violation of a restrictive covenant, unless the employee was terminated without cause, in which case the standard reasonableness analysis applied to any restrictive covenant.” The Court held that, because the plaintiff did not contend that she was denied access to the postemployment benefits to which she was contractually entitled, the question of whether her termination was with or without cause was irrelevant, the covenants were sufficiently limited in scope and geography to be enforceable, and denied the motion.
In a 2022 case, an E.D.N.Y. judge affirmed the unconscionability of enforcing a non-compete against an employee who had been discharged without cause. In that case, both parties argued that the other had breached the agreement first. The employer argued that the employee, a doctor, had violated the non-compete first by independently treating patients at another office, and the employee argued that the employer had first breached the implied covenant of good faith and fair dealing by limiting the types of procedures he could perform, and again breached the agreement at a later time by not paying him pursuant to the agreement. The Court concluded that an employer’s alleged breach of the implied covenant does not render a restrictive covenant unenforceable, so the employee was the first party to be in breach. However, the non-compete became unenforceable at the time of the employer’s subsequent breach.19 It is well-settled in New York law that a breaching party may not enforce a restrictive covenant.20
Future of Non-Competes in New York
In 2023, the New York Legislature voted to ban all new non-compete agreements, but Governor Hochul vetoed the statute. Since then, New York State legislators have repeatedly introduced narrower versions of a non-compete ban, most notably Senate Bill S9759 (and its Assembly counterpart A10023).
Unlike the original sweeping ban, the Senate Bill explicitly permits non-competes for “highly compensated individuals” earning an average of $500,000 or more per year, as well as agreements tied directly to the sale of a business but would completely protect health-related professionals regardless of salary. This bill passed the New York Senate on June 3, 2026 but stalled in the Assembly Labor Committee before the session concluded. It may roll over into the 2027 legislative term.
If a bill eventually passes and is signed by Governor Hochul or a successor, it will almost certainly not be retroactive but rather would only void new non-compete provisions in agreements signed 30 or so days after enactment, leaving existing provisions to be judged under existing common law.
In conclusion, while non-compete provisions are enforceable in New York, they must meet stringent criteria to be considered valid. Courts closely scrutinize these provisions to ensure they are reasonable and necessary to protect legitimate business interests without imposing undue hardship on employees or harming the public interest.
1 Practical Law Labor & Employment, Non-Compete Laws: New York, Practical Law (Thomson Reuters, Apr. 16, 2024), Westlaw.
2 Davis v. Marshall & Sterling, Inc., 217 A.D.3d 1073, 1076 (3rd Dept. 2023) (insurance company brought summary judgment cross-motion; court affirmed lower court decision granting the motion, finding the company had a valid business interest to protect and is permitted to enforce the restrictive covenants in its employment agreements).
3 Magtoles v. United Staffing Registry, Inc., 665 F. Supp. 3d 326, 348-49 (E.D.N.Y. 2023) (court granted healthcare professionals’ motion for summary judgment declaring non-compete clauses in their employment contracts unenforceable and permanently enjoining their employer from enforcing the clause; court found the non-compete clauses overbroad where the employer alleged no facts implicating any of the four cognizable employer interests).
4 But see JLM Couture, Inc. v. Gutman, 24 F.4th 785 (2d Cir. 2022) (affirming lower court’s determination that a non-compete agreement was reasonable and fully enforceable through injunctive relief, where employee did not contest that her services were “special, unique or extraordinary;” the court recognized that New York allowed injunctive relief “where the non-compete covenant is found to be reasonable and the employee’s services are unique.”) (emphasis in original) (quoting Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70 (2d Cir. 1999)).
5 Integra Optics, Inc. v. Nash, No. 1:18-CV-0345 (GTS/TWD), 2018 WL 2244460, at *7 (N.D.N.Y. Apr. 10, 2018) (court enforced an employer’s preliminary injunction against a former employer as the non-compete agreement was deemed reasonable; specifically, the restriction on geographic scope was considered necessary to protect the employer’s business).
6 Magtoles, 665 F. Supp. 3d at 348.
7 See, e.g., Ticor, 173 F.3d at 71 (restrictive covenant of six months enforceable); Poller v. BioScrip, Inc., 974 F. Supp. 2d 204, 220 (S.D.N.Y. 2013) (“Courts have routinely held that limitations of one year, when coupled with corresponding geographic limitations, can be reasonable.”); Estee Lauder Co. Inc. v. Batra, 430 F. Supp. 2d 158, 182 (S.D.N.Y. 2006) (five-month non-compete reasonable) Amer. Broad. Co., Inc. v. Wolf, 76 A.D.2d 162, 176 (1st Dept 1980) (non-compete of three months enforceable); Maltby v. Harlow Meyer Savage, Inc., 633 N.Y.S.2d 926, 930 (Sup. Ct. N.Y. Cnty. 1995) (six-month non-compete enforceable); Evolution Mkts., Inc. v. Penny, No. 7823/09, 2009 WL 147051, at *13-15 (Sup. Ct. Westcheser Cnty. May 20, 2009) (enforcing restrictive covenant lasting six months).
8 Bruderman Bros., LLC v. Goldberg, 193 A.D.3d 478, 478 (1st Dept. 2021).
9 R&G Brenner Income Tax Consultants v. Fonts, 206 A.D.3d 943, 945 (2nd Dept. 2022) (the court denied the employer’s motion for a preliminary injunction to enforce restrictive covenants due to issues of fact over whether the plaintiff purchased the rights to the defendant’s clients pursuant to the parties’ agreements and whether the plaintiff breached its own obligations pursuant to those agreements).
10 JLM Couture, Inc. v. Gutman, 24 F.4th at 795 (upholding district court order enforcing the non-compete provision).
11 See, e.g., Twitchell Tech. Prods., LLC v. Mechoshade Sys., LLC, 227 A.D.3d 45, 60 (2nd Dept. 2024).
12 2 Business Torts § 18.03, Covenants Not to Compete: Elements and Enforceability (2024); see also Keneally, Lynch & Bak, LLP v. Salvi, 190 A.D.3d 961, 963 (2d Dept 2021) (holding a covenant not to compete within an agreement for the sale of a law practice valid and enforceable because the scope and duration of the covenant not to compete were reasonable and did not unreasonably harm the defendant or the general public).
13 Twitchell, 227 A.D.3d at 54.
14 Keneally, Lynch & Bak, LLP v. Salvi, 231 A.D.3d 1137, 1137 (2 Dept 2024).
15 Fersel v. Paramount Med. Servs., 588 F. Supp. 3d 304, 325 (E.D.N.Y. 2022).
16 Sulds, New York Employment Law, §4.03 Restrictive Covenants (2024).
17 Beirne Wealth Consulting Servs., LLC v. Englebert, No. 19 Civ. 7936 (ER), 2020 WL 506639, at *5 (S.D.N.Y. Jan. 30, 2020).
18 Kelley-Hilton v Sterling Infosystems Inc., 426 F. Supp. 3d 49, 59-60 (S.D.N.Y. 2019).
19 Fersel, 588 F. Supp. 3d at 326.
20 Federal Trade Commission, Noncompete Rule, ftc.gov, https://www.ftc.gov/legal-library/browse/rules/noncompete-rule.