Changes Brewing for Enforceability of Non‑Compete Provisions

Due to centuries of common law jurisprudence and periodic legislative adjustments, courts in most American jurisdictions typically uphold reasonable non-competition agreements related to employment matters. However, there are a handful of outlier jurisdictions where non-competes are flatly banned. Like most states, New York has developed rules that protect employers’ legitimate interests and employees from unreasonable restrictions on their ability to earn a living. So, New York non‑competes are enforceable if necessary to protect employers’ legitimate business interests rather than impose an undue hardship on the employee. Raw prevention of competition is not a legitimate business interest, but protecting trade secrets, confidential information and close client relationships built on the employer’s time and dime can provide the basis for enforceable non-competes. Until recently, the rules seemed settled. However, the New York State legislature has passed a bill that would ban virtually all employment-related non-competes (New York Bill), and the Federal Trade Commission has announced its intention to promulgate a rule broadly banning non-competes (Proposed Rule). Those proposals represent a fundamental shift in the law governing restrictive covenants in New York. This guest article by Friedman Kaplan partner Lance J. Gotko analyzes the New York Bill and the Proposed Rule; raises questions about their implications; and explores how they might impact different aspects of non‑compete agreements. It highlights the potential impact of these changes on the enforceability of non‑competes, including their effect on various agreements and legal relationships. See “What Fund Managers Should Know About the FTC’s Proposed Ban on Non‑Compete Provisions” (Jun. 1, 2023).

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