Restrictive covenants are contractual provisions that limit what an employee can do after leaving a job. They are among the most heavily negotiated and most frequently litigated terms in employment agreements, severance agreements, and partnership agreements in New York. For employers, restrictive covenants protect business relationships, confidential information, and competitive advantages. For employees, they can restrict the ability to earn a living, change jobs, or start a new business.
This guide covers the three main types of restrictive covenants used in New York (non-compete, non-solicitation, and confidentiality agreements), the legal standards for enforceability, and how employees and employers can negotiate terms that balance protection with fairness.
Types of Restrictive Covenants
Non-Compete Agreements
A non-compete agreement prohibits the employee from working for a competitor or starting a competing business for a specified period after the employment ends. Non-competes are the most restrictive type of covenant because they directly limit the employee's ability to work in their field. In New York, non-competes are enforceable only to the extent necessary to protect the employer's legitimate business interests, and courts scrutinize them more closely than other types of restrictive covenants.
A typical non-compete defines the restricted activities (what the employee cannot do), the restricted territory (where the restriction applies), and the restricted period (how long the restriction lasts). The narrower these definitions, the more likely the non-compete is to be enforced. A non-compete that prohibits a marketing executive from working for any competitor anywhere in the United States for three years is far less likely to be enforced than one that prohibits the same executive from working for a direct competitor in the New York metropolitan area for one year. For a detailed analysis, see our article on non-compete agreements in New York.
Non-Solicitation Agreements
A non-solicitation agreement prohibits the employee from soliciting the employer's clients, customers, or employees after leaving. Unlike a non-compete, a non-solicitation agreement does not prevent the employee from working for a competitor; it only prevents the employee from using the relationships developed during their employment to take business away from the former employer.
Non-solicitation agreements come in two varieties: client non-solicitation (restricting the employee from soliciting the employer's clients or customers) and employee non-solicitation (restricting the employee from recruiting the employer's employees). Client non-solicitation agreements are common in industries where employees develop close relationships with clients, such as financial services, consulting, advertising, and professional services. Employee non-solicitation agreements protect the employer's workforce from being raided by a departing employee who joins a competitor.
Courts generally enforce non-solicitation agreements more readily than non-competes because they impose a lesser burden on the employee. The employee can still work in their field and even work for a direct competitor; they simply cannot solicit specific clients or employees. However, the scope must still be reasonable. A non-solicitation provision that effectively functions as a non-compete (for example, by restricting the employee from soliciting any potential client in an entire industry) may be treated as a non-compete and subjected to stricter scrutiny.
Confidentiality and Non-Disclosure Agreements
Confidentiality agreements (also called non-disclosure agreements or NDAs) prohibit the employee from using or disclosing the employer's confidential information and trade secrets. Unlike non-competes and non-solicitation agreements, confidentiality agreements do not restrict the employee's ability to work; they only restrict the use and disclosure of specific information. For this reason, they are the most readily enforced type of restrictive covenant.
The key issue in confidentiality agreements is the definition of "confidential information." Overly broad definitions that encompass general knowledge, publicly available information, or skills the employee would have developed regardless of their employment may not be enforceable. The definition should be specific enough to identify the information being protected (client lists, pricing formulas, proprietary processes, marketing strategies, software code, and similar categories) while excluding general knowledge and skills that belong to the employee.
Enforceability Standards in New York
The Three-Part Test
New York courts evaluate non-compete agreements under a three-part test. The restriction must be necessary to protect a legitimate business interest, it must not impose an undue hardship on the employee, and it must not be harmful to the public interest. The legitimate interests that can support a non-compete include the protection of trade secrets and confidential information, the protection of client relationships that the employee developed during their employment, and the protection of unique or extraordinary services the employee provided (this applies primarily to highly specialized professionals whose departure would cause disproportionate harm to the employer).
Reasonableness Factors
Even if the employer can identify a legitimate business interest, the restriction must be reasonable in its scope, duration, and geographic reach. Courts consider the following factors: the duration of the restriction (one year is generally considered reasonable, two years may be acceptable for senior executives, anything longer is difficult to enforce), the geographic scope (restrictions limited to the areas where the employer actually does business are more likely to be enforced), the scope of restricted activities (narrow restrictions targeting specific competitors or specific activities are preferred over broad prohibitions on working in an entire industry), and the employee's role and access to confidential information (senior employees with significant access to trade secrets and client relationships are more likely to be bound by enforceable non-competes than junior employees with limited access).
The Garden Leave Provision
A garden leave provision requires the employer to continue paying the employee's salary during the non-compete period. In exchange, the employee agrees not to work for a competitor while receiving their salary. Garden leave provisions are more common in the financial services industry and are viewed favorably by courts because they reduce the hardship on the employee: the employee is restricted from working but is still being paid. If your employer is asking you to accept a non-compete, negotiating for garden leave pay is one of the most effective ways to mitigate the restriction's impact on your livelihood.
Restrictive Covenants in Different Contexts
Employment Agreements
Non-competes signed at the start of employment are supported by the consideration of the employment itself. Non-competes signed during employment are supported by continued employment (though additional consideration such as a raise, bonus, or promotion strengthens enforceability). The timing of when the non-compete is presented matters: an employee who signs a non-compete after years of employment has a stronger argument that additional consideration was required than one who signs at the start. For more on employment agreement terms generally, see our employment contracts practice page.
Severance Agreements
Restrictive covenants included in severance agreements present unique negotiation opportunities. The employer is offering severance in exchange for a release of claims, and any restrictive covenants imposed through the severance agreement should be supported by additional consideration beyond the severance payment itself. If the employer wants you to agree to a non-compete as part of your severance, the severance payment should reflect the value of the restriction. An employee who is being asked to sit out of the job market for a year should receive more severance than one who is free to start working immediately. For a complete guide to severance negotiations, see our article on severance agreements in New York.
Sale of a Business
Non-competes signed in connection with the sale of a business are subject to a more relaxed enforceability standard than employment non-competes. Courts recognize that the buyer of a business needs protection against the seller immediately competing and taking back the customers, goodwill, and market position the buyer just paid for. Non-competes in the sale context can be broader in scope and longer in duration (three to five years is common) than those in the employment context. For guidance on business sale transactions, see our article on buying or selling a business in New York.
Partnership and Shareholder Agreements
Restrictive covenants in partnership and shareholder agreements are also subject to a more favorable enforceability standard than employment non-competes. Partners and shareholders have greater bargaining power than employees, and courts recognize that restricting a departing partner from competing protects the interests of the remaining partners and the business itself. The scope and duration of the restriction should be tailored to the specific business and the departing partner's role. For more, see our guides on partnership agreements and shareholder agreements in New York.
New York Non-Compete Legislation
New York has considered legislation to ban or restrict non-compete agreements for employees. While no statewide ban has been enacted as of this writing, the legislative trend in New York (and nationally) is toward limiting the use of non-competes, particularly for lower-wage workers. Several states have already enacted laws restricting non-competes for employees earning below a specified threshold, and the FTC proposed (but did not finalize) a nationwide ban. Employers and employees in New York should monitor this area of the law, as legislative changes could affect the enforceability of existing and future non-compete agreements.
Negotiating Restrictive Covenants
For Employees
If you are asked to sign a restrictive covenant, whether as part of an employment agreement, a severance agreement, or another transaction, you should have an attorney review the terms before you sign. Key negotiation points include narrowing the scope of restricted activities to target only the specific competitive threat the employer is concerned about, reducing the duration to one year or less, limiting the geographic scope to the specific markets where the employer actually operates, adding a carve-out for specific companies or industries you may want to work for, negotiating for garden leave pay during the restricted period, and ensuring that the restriction terminates if the employer terminates you without cause.
For Employers
Employers should draft restrictive covenants that are tailored to the specific employee and the specific business interest being protected. One-size-fits-all non-competes applied to every employee, regardless of their role or access to confidential information, are less likely to be enforced than targeted restrictions drafted for employees who actually pose a competitive risk. Employers should also ensure that the consideration supporting the restriction is adequate and documented, and that the restriction is no broader than necessary. An overbroad restriction that a court refuses to enforce provides no protection at all. For more on structuring employment relationships, visit our employment law practice page.
What to Do If You Are Facing a Restrictive Covenant Dispute
If you have signed a restrictive covenant and your former employer is threatening to enforce it, or if you are considering leaving a job and are uncertain whether your restrictive covenants will be enforced, consult an attorney immediately. The enforceability of restrictive covenants is highly fact-specific, and an attorney experienced in New York employment law can evaluate the terms, assess the likelihood of enforcement, and advise you on your options. If the covenant is unenforceable or overbroad, you may be able to challenge it. If it is likely to be enforced, your attorney can help you understand the boundaries of the restriction and plan your next career move within those boundaries.
Similarly, if you are an employer and a former employee is violating a restrictive covenant, time is critical. Courts can issue temporary restraining orders and preliminary injunctions to prevent ongoing violations, but only if the employer acts promptly. Delay in seeking enforcement can be used against the employer as evidence that the restriction is not necessary to protect a legitimate business interest. For assistance with employment contract disputes, see our commercial contracts practice page.
Frequently Asked Questions
Are non-compete agreements enforceable in New York?
New York courts will enforce non-compete agreements if they are reasonable in scope, duration, and geographic area, and if they are necessary to protect a legitimate business interest. Legitimate interests include protecting trade secrets and confidential information, preventing the solicitation of clients with whom the employee developed relationships during employment, and protecting unique or extraordinary services the employee provided. Courts disfavor non-competes because they restrict a person's ability to earn a living, and they will not enforce provisions that are broader than necessary to protect the employer's legitimate interests.
What is the difference between a non-compete, a non-solicitation, and a confidentiality agreement?
A non-compete agreement restricts the employee from working for a competitor or starting a competing business for a defined period after leaving. A non-solicitation agreement restricts the employee from soliciting the employer's clients, customers, or employees, but does not prevent the employee from working for a competitor. A confidentiality (or non-disclosure) agreement restricts the employee from using or disclosing the employer's confidential information and trade secrets. These three types of restrictions serve different purposes and have different enforceability standards. Non-solicitation and confidentiality agreements are generally easier to enforce than non-competes because they impose less burden on the employee's ability to work.
How long can a non-compete last in New York?
New York courts have generally upheld non-compete durations of one year or less as reasonable. Durations of two years have been enforced in some circumstances, particularly for senior executives with access to significant confidential information. Durations exceeding two years are rarely enforced unless extraordinary circumstances justify the longer restriction. The reasonableness of the duration depends on the specific facts, including the employee's role, the sensitivity of the information they had access to, and how quickly the employer's confidential information would become stale.
Can my employer enforce a non-compete if I was laid off or terminated without cause?
New York courts have considered the circumstances of the termination in determining whether to enforce a non-compete. Several decisions have declined to enforce non-competes against employees who were terminated without cause, reasoning that the employer's interest in preventing competition is weaker when the employer chose to end the relationship. However, this is not a bright-line rule, and some courts have enforced non-competes even after involuntary termination. The outcome depends on the specific facts, the language of the agreement, and whether the employer provided adequate consideration (such as severance) in exchange for the restriction.
What happens if my non-compete is too broad?
New York courts have the power to modify (or 'blue pencil') an overly broad non-compete by narrowing the scope, reducing the duration, or limiting the geographic area to make it enforceable. This means that even if the non-compete as written is unreasonable, the court may still enforce a modified version of it. Some courts will only blue pencil if the agreement includes a clause authorizing modification, while others will do so regardless. Because of this judicial discretion, employees should not assume that an overbroad non-compete is entirely unenforceable.
Do I need separate consideration for a non-compete signed after I started working?
In New York, continued employment alone is generally sufficient consideration for a non-compete signed after the start of employment, provided the employee continues to work for a meaningful period after signing. However, if the employee is asked to sign a non-compete and is terminated shortly afterward, a court may find that the consideration was illusory. Additional consideration, such as a raise, a bonus, a promotion, access to confidential information, or enhanced stock options, strengthens the enforceability of a non-compete signed mid-employment.
Can a confidentiality agreement last forever?
Confidentiality agreements can have indefinite durations for true trade secrets, because trade secret protection lasts as long as the information remains secret and derives economic value from its secrecy. For confidential information that does not rise to the level of a trade secret (such as client lists, pricing information, or business strategies that may become stale over time), an indefinite restriction may be challenged as unreasonable. The enforceability of an indefinite confidentiality provision depends on the nature of the information and whether it continues to have competitive value. Your attorney can advise on whether the information at issue qualifies for indefinite protection.
Questions About a Restrictive Covenant?
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