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When NY Courts Will Uphold Non-Compete Clauses - No Matter How Unreasonable


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1/1/2016
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There is an extremely important exception to the New York Courts' express disfavor for non-compete agreements: the employee choice doctrine. Under this exception to the rule, the employer is permitted to make the employee's right to receive post-employment benefits contingent upon the employee's agreement to abide by a non-compete agreement. The reason that this practice is permitted, according to New York's highest court, is as follows: "The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee's liberty to earn a living ( see Kristt v. Whelan, 4 A.D.2d 195, 199, 164 N.Y.S.2d 239 [1st Dept.1957], affd. without op. 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116 [1958]; see also Post, 48 N.Y.2d at 88-89, 421 N.Y.S.2d 847, 397 N.E.2d 358). It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment ( Kristt, 4 A.D.2d at 199, 164 N.Y.S.2d 239)." Importantly - and the significance of this cannot be overstated - under the employee choice doctrine, a restrictive covenant (i.e., a "non-compete agreement") will be enforceable without regard to reasonableness if an employee left his employer voluntarily. Conversely, New York's high court has articulated an almost equally important caveat to this rule: "An essential element to the doctrine is the employer's 'continued willingness to employ' the employee ( Post, 48 N.Y.2d at 89, 421 N.Y.S.2d 847, 397 N.E.2d 358). Where the employer terminates the employment relationship without cause, 'his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer's ability to impose a forfeiture' ( id.)."



Category: Non-Compete & Employment Agreements

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