Legal Memorandum: Enforceability of a Non-compete Agreement

Issue: Under New York law, is a non-compete agreement enforceable without a geographic limitation?

Covenants restricting competition are enforceable only if they are reasonable, and if the covenant restricts an employee from pursuing his or her livelihood, the covenant will be subjected to a strict standard of reasonableness.  Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 307, 353 N.E.2d 590, 592-93, 386 N.Y.S.2d 677, 679 (1976).  That standard decrees that a noncompetition covenant will be enforced only if it is “reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.”  Id. at 307, 353 N.E.2d at 592-93, 386 N.Y.S.2d at 679.  

In most cases, the lack of a geographic limitation precludes enforcement of the covenant.  See Leon M. Reimer & Co. v. Cipolla, 929 F. Supp. 154, 160 (S.D.N.Y. 1996) (lack of geographic limitation is “an additional indicia of unreasonableness and unenforceability”). As a corollary to that rule, a covenant prescribing or suggesting a nationwide restriction is unenforceable.  Thus, for example, in Columbia Ribbon, the two-year covenant proscribed competition anywhere within the former employee’s sales territory, which in fact was a nationwide territory.  After the employee left, the employer sought an injunction to prevent the employee from competing “in the United States for a period of two years” and to prohibit the employee from soliciting or selling to customers he had worked with when he was still employed.  42 N.Y.2d at 498-99, 398 N.Y.S.2d at […]