How to Create an Effective Non-Compete Agreement

A Non-Compete Agreement is a legal document used by business owners to restrict their employees from doing things that will damage the business, such as trying to convert customers or using inside knowledge or trade secrets, after they leave the company.

In New York, Non-Compete Agreements have been historically hard to enforce. The New York Court of Appeals has set strict guidelines that Non-Compete Agreements must follow in order to be considered valid in a court of law. The most important factor in whether or not a Non-Compete is enforceable is whether it is considered reasonable. The agreement must neither place undue hardship on the employee nor place any restrictions on the employee that are greater than needed to protect the company's legitimate interest. Despite the difficulty in enforcing Non-Compete Agreements, it is wise for small business owners to look into drawing up a valid agreement in order to protect their business. Below are some tips that can make your Non-Compete agreements more likely to be enforced in court.




When drafting a Non-Compete Agreement, the first thing you should keep in mind is the following statement from the Court of Appeals: "Restrictive covenants will be enforceable to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information." You should not make the mistake of making your agreement too restrictive in order to protect the business from every possible scenario. It is far better to focus on specifics. Your Non-Compete Agreement should be specific to one state, a definitive period of time, and particular behaviors or actions. Creating broad agreements tends to increase the risk that a court will deem it too restrictive.

This means that it is usually unwise to create one uniform company-wide agreement. Instead, you should craft specific agreement for every employee that needs one. These agreements can be tailored to each employee's unique position in the company.

Another aspect of the Non-Compete that is often tricky to enforce is the clause on confidential information. It is very important to define what confidential information actually consists of in the agreement. In keeping with the tip above, you should tailor the definition of confidential information to the information that the specific employee would have access to.

Remember that if the court finds some of the clauses in your agreement invalid, they still have the power to modify the agreement instead of discarding it completely. This is commonly known as "blue penciling" the agreement. Some companies now prepare for the scenario of a judge modifying their agreement and include a "Blue Pencil Clause" stating the agreement should always be be enforced to the maximum extent allowed by law.

If you are a small business owner who needs to draft Non-Compete Agreements, feel free to call my office at 718-313-7563. You should consult a lawyer in order to get the maximum efficiency out of your agreements.