Can an employer in New York terminate one of its employees without cause, for example by layoff or firing, and still enforce contractual restrictions preventing that employee from competing against it? The Court of Appeals has addressed the issue, twice, in the past 35 years. Yet, its decisions have been cryptic. The various Appellate Divisions and federal courts in the Second Circuit have not construed them consistently. For that reason, the rules are different depending on localized jurisdictions, and even then the result is far from certain. Employers seeking to enforce these post-employment restrictions would be wise to understand the landscape before any foray into a potentially unwelcome jurisdiction. That tortuous landscape is described below.
Employee Choice Doctrine
It is well-established that New York disfavors agreements that restrict an employee’s ability to compete against his former employer because “powerful considerations of public policy…militate against sanctioning the loss of a man’s livelihood.”1 To be enforced, such agreements must pass a test of “reasonableness,” meaning they are (1) no greater than required to protect the employer’s legitimate interests, (2) not unduly harsh on the employee and (3) not injurious to the public.2 Post-employment restrictions on competition typically will be scrutinized for reasonableness by all courts in New York.
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