Phillips & Associates

Restrictive Covenants

New York City Attorneys Handling Executive Compensation Matters

Many businesses feel that since high-level executives make more money and are given more access to trade secrets and confidential information, it is necessary to bind them with restrictive covenants, either in their employment agreements or in separate contracts. Restrictive covenants include non-compete clauses, non-disclosure agreements, and non-solicitation agreements. If you are concerned about the restrictive covenants in a contract with your employer or have been accused of violating a restrictive covenant, the New York City executive compensation lawyers at Phillips & Associates may be able to help you.

Understanding the Function of Restrictive Covenants

Many employers include provisions in their employment or severance agreements, or even draft a separate contract, in an effort to limit employee action once the employment relationship has terminated. Restrictive covenants are simply contractual provisions that limit the actions that you can take for a certain period after the employment relationship is over, whether due to termination or the sale of the company. They can be imposed to guard an employer's legitimate business interests.

Restrictive covenants include non-compete provisions, non-solicitation provisions, no-hire provisions, and garden leave provisions. These covenants may be found in employment contracts, severance agreements, stock option agreements, employee manuals, and compensation plans. Sometimes they are found in company sales agreements.

Enforcing Restrictive Covenants

Although New York disfavors restrictive covenants based on public policy, which respects the right of people to earn their own living, these provisions are enforced if: (1) there is a legitimate business interest in enforcement, and (2) the scope of the restriction is narrowly drawn. Restrictive covenants are more likely to be enforced in the context of a high-level executive because high-level executives are exposed to more confidential business information and strategy.

In New York, a restrictive covenant is considered enforceable if the employer can show that: (1) the restriction is no greater than what is required to protect the employer's legitimate interest, (2) the restriction does not create an undue hardship for the employee, and (3) the restriction does not harm the public. Legitimate interests include protecting trade secrets, confidential information, customer relationships and information, and unique and extraordinary services. The scope of the restriction must be narrow in terms of the geographic scope, the duration of the restriction, and the business activity affected.

Geographic Scope

Whether a non-compete agreement is reasonable in terms of geographic scope turns on the specific facts and circumstances of the situation. Courts have upheld a broad geographic restriction when the type of business required that there be no restriction in geographic scope, but the time frame for the restriction was brief. However, if there is a restriction that has no scope, and it lasts for years, this is likely to be found unenforceable because of the duration.

Duration

Generally, the time frame for an enforceable restrictive covenant is 6 months or fewer. However, if there is an extremely limited geographic restriction, the court may be willing to entertain a more expansive time frame. An attorney can advise you on whether a certain time frame is likely to be accepted.

Business Activity

Additionally, the restrictive covenant needs to be limited in terms of the business activity that it affects. It must be tailored to prevent an employee's disclosure or solicitation of trade secrets or prevent an employee's release of confidential information. A non-compete may be enforced when the employee's services to the employer are considered unique or special. This is a very rare situation, but it may occur in the context of high-level executives. For example, in one case, a non-compete was enforceable because the employee's receipt of intangibles like professional status, skills, or knowledge may be consideration enough to support a non-compete agreement.

Alternatives

Sometimes executives are paid for the time that the business would like them to refrain from competing. This is a garden leave provision, and New York courts favor it. Courts may not enforce a garden leave provision when there is a clause terminating garden leave if the employee finds another job.

Another alternative is the forfeiture for competition provision. Courts view these more favorably than ordinary non-compete agreements because the employee can take a competitive new job and forgo compensation provided by the former employer for a specified time period.

Often, there are disputes about an employer's efforts to protect trade secrets, other intellectual property, confidential information, and customer relationships. In some cases, this is addressed with a non-disclosure agreement or a non-solicitation agreement. If these agreements are valid, and they are breached, the employer may be able to sue an employee for breach of contract, misappropriation of trade secrets, and breach of fiduciary duty.

Hire a Skillful Executive Compensation Attorney in New York City

If you are concerned about restrictive covenants, wrongful termination, or other legal issues as an executive in a New York City workplace, you should consult an experienced employment lawyer. Contact Phillips & Associates at (212) 248-7431 or through our online form. We handle employment litigation in the the boroughs of the Bronx, Queens, Brooklyn, and Manhattan; the counties of Westchester, Nassau, and Suffolk; as well as New Jersey, Connecticut and Pennsylvania.

PHILLIPS & ASSOCIATES
45 Broadway, #620,
New York NY, 10006
Tel: 212-248-7431
Fax: 212-901-2107

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