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Non-compete Agreements

June 16, 2017

Keep reading to learn more about non-compete agreements in the workplace.

As the American economy increasingly becomes more about knowledge than physical labor, non-compete agreements are gaining popularity with businesses across the country. Non-compete agreements usually forbid employees from working for his or her employer’s competition or from starting their own business that would compete against the employer.

Employers see the agreement as necessary to protect their trade secrets and client lists.

Employers claim that in return for signing the agreement, employees usually receive more training and higher pay due to the ensured stability that signing the agreement offers the employer. Labor advocates on the other hand claim that non-compete agreements hinder economic growth, as employees are not able to work where they want and employers are not able to hire who they want. As for wages, labor advocates warn, why would an employer negotiate with an employee for a higher wage if they know that the employee is legally bound to stay employed at their business?

Non-compete agreements are more popular than many may think. One in five employees or about 28 million people are currently bound by an agreement, a number that has tripled since 2000. Agreements of all sorts are used against employees at all levels. ‘Blue-Collar’ workers are becoming increasingly affected by non-compete agreements.

Sometimes, employees are unaware that they have signed a non-compete agreement because it is offered to the employee as a ‘formality’ when the employee’s negotiating power is at its lowest. The employee may not become aware of the existence of an agreement until the former employee initiates or threatens a lawsuit because the former employee violated the agreement. Many employers who fear to get involved in litigation let the employee go rather than fight the non-compete agreement. Employees can be effectually barred from making a living the only way they know how.

Studies have shown that non-compete agreements have a negative impact on the economy because wages, employment, and entrepreneurship are down when workers have little leverage to leave for a new job. In states where non-compete agreements are strictly enforced, employees make less and talent from those states are leaving to find work where they cannot be restrained.

Non-compete agreements are usually disfavored by the courts in New York. Agreements are only enforced if (1) the employee understood and agreed to the legal consequences of the agreement, (2) the agreement is protecting a legitimate business interest of the employer (i.e. trade secrets) and (3) the agreement is limited to a reasonable scope, meaning the agreement can only pertain to a limited geographical area for a specified amount of time.

However, New York State Courts have recognized an ‘employee choice doctrine’ which acts as an exception to the general disapproval of non-compete agreements. If post-employment benefits are conditioned upon compliance with a non-compete agreement and the employee accepts the agreement knowing that they are voluntarily restricting their own ability to work for a competitor in the future, then there are no unreasonable restraints on the employee.

Eric Schneiderman, the New York Attorney General and his office have declared war on overbroad non-compete agreements. Recently, the Attorney General’s Office and fast-food giant Jimmy Johns came to a settlement where the company agreed to stop giving franchises sample non-compete agreements and the company told franchises to void existing ones. Schneiderman also plans to propose a bill that would ban non-compete agreements for employees earning less than $900 per week, the bill would also force employers to show an employee the non-compete agreement before they offer the job. In addition, the bill would limit the amount of time that the employee can be restricted and would require employers to pay employees higher wages if they sign a non-compete agreement.

If you are an employer or an employee and have questions about the use of a non-compete, please contact an attorney in the business and commercial group at HoganWillig at 716-636-7600. HoganWillig is located at 2410 North Forest Road in Amherst, New York 14068, with additional offices in Buffalo, Lancaster, Lockport, and Ellicottville.