In many industries, a new employee will be made to sign an employment contract. A standard clause in such a contract often used is a non-compete clause, also called a covenant not to compete or a restrictive covenant. It is that particular clause that I will be discussing here.
From a business perspective, putting a non-compete clause into your employment agreement is a good idea. You want to gain some kind of loyalty from your employee, so that they don’t just up and leave after gaining all kinds of knowledge at your company, and go make money for the competitor. But how much weight do they carry? Can you just make your employee sign a contract that says “I agree not to compete for 5 years in the same industry”? The short answer to that is no – but at the same time, unlike a lot of other contractual clauses, if a court feels that what you have imposed is unreasonable, they will actually “fix” it to be reasonable, rather than get rid of it all together.
So what is a reasonable non-compete clause that will make it through the court system? The standard in New York, for example, is that a non-compete clause must be “reasonably limited temporally and geographically, and to the extent necessary to protect the employer’s use of trade secrets or confidential customer information.” Gilman & Ciocia, Inc. v. Randello, 55 A.D.3d 871, 872, 866 N.Y.S.2d 334 (2d Dept. 2008). Now you are probably saying “reasonably limited – what the hell does that mean?” Welcome to the world of the law. Generally this determination is going to follow closely to the facts of each individual case [...]