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How Much Must You Pay an Employee Not to Compete Post-Termination?

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As you may be aware, the general rule in New York is that if you're fired (but not "for cause"), your former employer can't hold you to the non-compete clause that was contained in your employment agreement. As noted in "How a Non-Compete Can Remain Enforceable in New York -  Even if You're Fired," there is an important exception, or caveat, to that rule, however: where the employer offers post-termination benefits in exchange for the employee's agreement not to compete.

This concept is known as the Employee Choice Doctrine.

The question then arises: how much must the employer pay in order for the (now former) employee to remain bound to the non-compete provision? Although there does not appear to be any clear articulation of this under New York law, since the Employee Choice Doctrine is grounded in basic contract principles, i.e., so long as there is no clear evidence of fraud, chances are that this agreement will withstand judicial scrutiny in New York.

Interestingly, however, it is clear that other jurisdictions have markedly different rules on the subject. For example, as of February 1, 2013, the People's Republic of China instituted Interpretation IV of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Labour Dispute Cases, which provides that in order for the non-compete to remain enforceable, the employer must pay the former employee 30 percent of the monthly average of the employee’s salary over the last 12 months prior to departure.

There does not, at present, appear to be any such law in New York.

Category: General