Employee Non-Compete Agreement and Enforceability Memo — New York

New York Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

I. Statutory and Common-Law Framework

New York has no general non-compete statute. The controlling authority is BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), in which the Court of Appeals stated the now-canonical three-part test:

"A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public."

Combined with Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303 (1976), New York courts have identified a narrow set of legitimate employer interests that can justify post-employment restraints:

• Protection of trade secrets and confidential customer information;
• Protection against employee's solicitation of clients developed at employer's expense (goodwill);
• Protection against use of unique or extraordinary employee services to competitive disadvantage;
• Protection of specialized training in which employer has invested.

Generic claims of "competitive harm" are insufficient. Reed Roberts, 40 N.Y.2d at 308.

S3100A (2023) update: New York Senate Bill S3100A and Assembly Bill A1278, which would have prohibited employers from seeking or requiring noncompetes from any "covered individual," passed both chambers in 2023 but were vetoed by Governor Hochul on December 22, 2023. The Governor cited the need for a tailored approach distinguishing high-earners from middle- and low-wage workers. No statewide statutory ban currently exists. BDO Seidman continues to govern.

II. Reasonableness Factors

III. Consideration Requirements

• At-hire covenants: Initial offer of employment is sufficient consideration.
• Mid-employment / post-hire: New York follows the majority rule — continued at-will employment is generally sufficient consideration, but specific consideration (raise, promotion, bonus, equity, new confidential-information access) is best practice to avoid challenge.
• Forfeiture-for-competition / employee-choice doctrine: Under Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84 (1979), where an employee voluntarily resigns, employer may enforce a forfeiture-of-deferred-compensation provision conditioned on non-competition without the BDO Seidman reasonableness test.

IV. Notice and Disclosure Requirements

No statutory pre-execution notice or review period applies in New York. Best practice:

• Disclose the requirement in the offer letter or recruitment correspondence;
• For mid-employment agreements, deliver the document with at least a 10–14-day review window and recommend that the employee consult counsel.

V. Income / Salary Thresholds

No statewide income threshold. The vetoed S3100A would have applied to all "covered individuals" without an income carve-out, which was one of the Governor's stated concerns. Industry-specific income-threshold rules exist in private industry codes (e.g., the financial-services Broker Protocol for signatory firms).

VI. Industry Carve-Outs

VII. Remedies

• Injunctive relief — temporary restraining order, preliminary injunction, permanent injunction. Plaintiff must show likelihood of success, irreparable harm, and balance of equities.
• Damages — actual damages flowing from breach.
• Attorneys' fees — only if the contract or a statute provides; no default fee-shifting in New York for non-compete actions.
• Liquidated damages — enforceable if a reasonable estimate of actual harm and not a penalty.
• Forfeiture of deferred compensation / stock awards — enforceable under Post employee-choice doctrine without BDO Seidman analysis where employee voluntarily resigns.
• Tortious interference against new employer if it induced breach with knowledge.

VIII. Recent Caselaw and Legislative Changes (2023–2025)

• S3100A / A1278 — VETOED by Governor Hochul, December 22, 2023. New York remains a common-law jurisdiction under BDO Seidman.
• Multiplier Inc. d/b/a Harness Wealth v. Moreno (Sup. Ct. N.Y. Cnty. 2024) — covenant lacking allegations of unique/extraordinary services or trade-secret misappropriation dismissed.
• Cook-Bolden v. DG TRC Mgmt. Co., 2019 WL 2119622 (S.D.N.Y. 2019) — two-year, ten-block radius enforced against dermatologist.
• Dupuy v. Aeis LLC, 81 Misc. 3d 1246(A) (Sup. Ct. 2024) — two-year, 100-mile radius enforced against director of business development.
• A Plus Med. Care, P.C. v. All Seasons Med. Care, P.C., Index No. 532557/2023 (Sup. Ct. 2024) — two-year, two-mile radius enforced against physician.
• Ryan, LLC v. FTC, No. 3:24-cv-986 (N.D. Tex. Aug. 20, 2024) — FTC noncompete rule set aside.
• Monitor: legislators continue to propose tailored noncompete restrictions (e.g., income-threshold-based bans) for the 2025–2026 session.

Part B — Employee Non-Compete Agreement (TEMPLATE)

Caption and Recitals

EMPLOYEE NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT

This Agreement is entered into as of [__/__/____] (the "Effective Date") between:

Recitals:

A. Company is engaged in the business of [________________________________] (the "Business").

B. Company has developed and maintains, at substantial expense, trade secrets, confidential customer information, client relationships, and goodwill, all of which constitute legitimate interests under New York law as articulated in BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), and Reed, Roberts Assocs. v. Strauman, 40 N.Y.2d 303 (1976).

C. In the course of Employee's employment, Employee will receive Confidential Information and develop substantial relationships with Company's clients using Company resources.

D. The parties intend the restrictions in this Agreement to be no greater than necessary to protect Company's legitimate interests and to be reasonable in time, geography, and scope.

1. Definitions

"Confidential Information" means non-public information of Company, including non-public customer lists and customer-specific information, pricing, financial information, business strategies, technical data, supplier and vendor information, and methods or processes.

"Trade Secret" has the meaning under New York common law and 18 U.S.C. § 1839 (Defend Trade Secrets Act).

"Restricted Period" means [____] months following the Termination Date. [Recommended: 6–18 months; 24 months only with strong client-goodwill or unique-services basis.]

"Restricted Territory" means: ☐ a [____]-mile radius from each Company office at which Employee worked during the [____] months before the Termination Date; ☐ the specific clients listed in Schedule A; ☐ the specific clients and prospective clients with whom Employee had material contact during the [____] months before the Termination Date.

"Restricted Business" means the design, sale, marketing, or provision of products or services materially similar to or directly competitive with the Business in which Employee was actually involved during the [____] months before the Termination Date.

"Termination Date" means the date Employee's employment with Company ends for any reason.

2. Acknowledgment of Legitimate Business Interests

Employee acknowledges that Company has the following legitimate interests under New York law that the restrictions in this Agreement are designed to protect:

☐ Protection of trade secrets and confidential customer information;
☐ Protection against misappropriation of customer goodwill developed at Company's expense;
☐ Protection against use of Employee's unique or extraordinary services to Company's competitive disadvantage;
☐ Protection of Company's investment in specialized training of Employee.

3. Non-Competition Covenant

During the Restricted Period and within the Restricted Territory, Employee shall not, directly or indirectly, engage in the Restricted Business, whether as employee, owner, partner, agent, officer, director, consultant, or independent contractor. Passive ownership of less than 1% of a publicly traded company is permitted.

4. Non-Solicitation of Customers

During the Restricted Period, Employee shall not, directly or indirectly, solicit, accept business from, or attempt to divert from Company any customer or prospective customer (a) with whom Employee had material contact during the [____] months before the Termination Date, or (b) about whom Employee had Confidential Information. This Section is intended to apply only to clients whose relationships with Company are protectable goodwill under BDO Seidman.

5. Non-Solicitation of Employees

During the Restricted Period, Employee shall not, directly or indirectly, solicit, recruit, or hire any employee or contractor of Company with whom Employee worked or had access to Confidential Information during the [____] months before the Termination Date.

6. Consideration

In addition to employment, Company is providing the following consideration:

☐ Initial offer of at-will employment, together with access to Confidential Information, client relationships, and specialized training;
☐ Promotion to [________________________________] effective [__/__/____];
☐ Signing or retention bonus of $[________________];
☐ Equity / stock options grant per the [________________________________] Plan;
☐ Other: [________________________________].

7. Garden Leave / Continued Compensation (Optional)

☐ Not applicable.

☐ Upon Employee's notice of termination, Employee shall provide [____] days' advance written notice during which Employee remains on payroll at full salary and benefits, may be relieved of active duties, and shall not commence employment with another business.

8. Acknowledgment of Review Opportunity

Employee acknowledges that Employee was provided this Agreement on [__/__/____], had at least [____] days to review it, was advised of the right to consult with an attorney of Employee's choice at Employee's expense, and signs voluntarily and knowingly.

9. Remedies

Breach or threatened breach of Sections 3, 4, or 5 will cause Company irreparable harm for which damages would be inadequate. Company is entitled to a temporary restraining order, preliminary injunction, and permanent injunction in addition to actual damages and any other relief available at law or in equity. Each party shall bear its own attorneys' fees and costs except as expressly provided by statute or in this Agreement.

10. Severability and Partial Enforcement

If a court finds any restriction in this Agreement to be overbroad, the parties expressly request that the court partially enforce the covenant by severing or modifying the overbroad portion and enforcing the remainder to the maximum extent permitted by law, consistent with BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), and Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364 (2015). The parties affirm that Company has acted in good faith and has not engaged in overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct.

11. Choice of Law and Forum

This Agreement is governed by New York law without regard to choice-of-law principles. Any action arising out of or relating to this Agreement shall be brought exclusively in the state or federal courts located in [____] County, New York, and the parties consent to personal jurisdiction and venue there.

12. Severability

If any provision is held invalid (and partial enforcement under Section 10 is not available), the remaining provisions shall remain in full force and effect.

13. Entire Agreement

This Agreement is the entire agreement of the parties as to its subject matter and supersedes all prior agreements and understandings. Amendments must be in writing signed by both parties.

Signature Block

COMPANY:

By: [________________________________]
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

EMPLOYEE:

[________________________________]
[Employee Printed Name]
Date: [__/__/____]

Part C — Pre-Signing Checklist (☐)

☐ Legitimate interest identified under BDO Seidman (trade secrets / confidential client info / goodwill / unique services / specialized training).
☐ Generic "competitive harm" rationale avoided (Reed Roberts).
☐ Duration within 6 months – 2 years; longer requires strong record.
☐ Geographic / client scope narrowly tied to the legitimate interest.
☐ Scope of activity limited to Employee's actual role.
☐ Undue-hardship analysis documented (Employee's earning capacity, alternative employment).
☐ Public-harm analysis documented (healthcare patient access, broadcast prohibition, etc.).
☐ Broadcast employee carve-out (N.Y. Lab. Law § 202-k) — verify if Employee is a "broadcast employee."
☐ Attorney carve-out (N.Y. Rules of Prof'l Conduct R. 5.6) — verify if Employee is a licensed attorney.
☐ Broker Protocol check — if Company is signatory, confirm consistency.
☐ Consideration adequate; for mid-employment covenants, document new consideration.
☐ Forum and law selected; choice-of-law not used to circumvent BDO Seidman against an out-of-state employee subject to a stricter regime (e.g., California § 925, Washington RCW 49.62).
☐ Partial-enforcement / severability election (§ 10) included.
☐ Trade-secret claim under DTSA (18 U.S.C. § 1836) and N.Y. common law preserved as parallel remedy.
☐ Monitor pending state legislation (S3100A successor bills).
☐ Counsel review completed.

Sources and References

• BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999) — https://law.justia.com/cases/new-york/court-of-appeals/1999/93-n-y-2d-382-0.html
• Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303 (1976)
• Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364 (2015)
• Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84 (1979) (employee-choice doctrine)
• N.Y. Lab. Law § 202-k (Broadcast Employees Freedom to Work Act)
• N.Y. Rules of Prof'l Conduct R. 5.6 (attorneys)
• N.Y. Atty. Gen. — Non-Compete Agreements in New York State (FAQ): https://ag.ny.gov/
• S3100A (2023) — VETOED: https://www.nysenate.gov/legislation/bills/2023/S3100/amendment/A
• Governor Hochul veto message (Dec. 22, 2023)
• Defend Trade Secrets Act, 18 U.S.C. §§ 1836 et seq.
• N.Y. Gen. Bus. Law § 340 (Donnelly Act)
• Ryan, LLC v. FTC, No. 3:24-cv-986 (N.D. Tex. Aug. 20, 2024)