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Employee Choice: An Alternative to Non-Competition Agreements
A question that you may ask yourself as a business owner is how can I prevent key employees from leaving and going to work for a competitor after learning the business at my expense? Some business owners try to protect themselves by drafting non-competition agreements that try to prevent employees from going to work for a competitor. Sometimes, with the assistance of an attorney, these agreements are carefully written with the restriction as reasonable as possible, limiting the ban in time and geographic scope, in the hope that they will be enforceable in court.
In many states, however, including New York, courts are highly skeptical of non-competition agreements, in that they hamper competition and prevent individuals from earning a livelihood as they choose. In New York, courts will only enforce a non-competition agreement if it is reasonable and if it either serves to protect an employer's legitimate protectible business interest or if the employee's services are unique. So, a reasonable non-competition agreement will be enforceable to prevent misappropriation of confidential customer lists and trade secrets or to prevent a former employer from utilizing client relationships developed at the employer's expense. (Most employees' services are not "unique.") However, such an agreement will not prevent a talented employee from leaving to work for a competitor since this alone is not recognized as a "protectible" business interest.
What then can a business do to protect itself?
One option to consider as an alternative to a non-competition agreement is an agreement linking certain employee benefits or payments to an obligation not to compete post-employment. Typically, this can be a provision included in an employment agreement or an employment separation agreement by which the employee agrees not to compete in return for certain benefits or payments. Under what is known as the "Employee Choice" doctrine, these provisions are enforceable even if they do not involve an employer's legitimate"protectible" business interest, such as a trade secret or an employee who provided unique services. Under this doctrine, an employee who leaves an employer chooses to accept these benefits or payments in return for not going to work for a competitor. If the employee later goes to work for a competitor, then he or she forfeits any unpaid benefits. As an added incentive not to compete, an employee choosing to compete may even be required to pay back what was already received.
Although an Employee Choice agreement may not prevent an employee from competing, it may discourage an employee from doing so, at least for long enough so that an employer can properly plan for such competition. Contact an attorney from Vishnick McGovern Milizio LLP's Employment Law Practice Group to discuss whether such an agreement is appropriate for your business and for a full review of your employment practices.
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