New York has not banned non-compete agreements. Courts here still enforce them, but only when the restriction is reasonable in time, geography, and scope, protects a genuine business interest such as trade secrets or client relationships, and doesn’t create undue hardship for the person who signed it. A proposed bill would prohibit most non-compete agreements, but it has not taken effect.
What Is a Non-Compete Agreement?
A non-compete agreement is a contract clause that restricts someone from working for a competitor, starting a competing business, or soliciting former clients for a set period after leaving a job or selling a business. Employers use them to protect investments in training, client relationships, proprietary processes, and confidential information that a departing employee could otherwise take straight to a rival.
A non-compete clause rarely stands alone. It typically lives inside a broader offer letter or hiring contract, and the surrounding language in that document, from compensation terms to job duties, can influence whether a judge decides the restriction was fair. Employers who want that underlying paperwork to hold up should have it prepared by attorneys experienced in drafting hiring contracts and offer letters for New York City staff, since a poorly worded employment contract can undercut an otherwise reasonable restrictive covenant.
Are Non-Competes Legal in New York Right Now?
Yes, non-compete agreements remain enforceable in New York under the current common-law reasonableness standard, unlike in states such as California, Minnesota, and North Dakota, where they’re banned outright. New York has never passed a statute that voids non-competes across the board. Instead, judges evaluate each one under a common-law reasonableness standard that’s been refined through decades of case law.
That said, the landscape has been unsettled for years. In 2023, the legislature passed a bill that would have banned nearly all non-competes, but Governor Kathy Hochul vetoed it, citing concerns that it didn’t carve out exceptions for highly paid executives or business sales. Lawmakers have since introduced narrower versions aimed at addressing her objections, and one of those bills is currently working its way through committee. Nothing has taken effect yet, so the existing common-law test still governs every agreement signed today.
The Reasonableness Test New York Courts Apply
New York courts, following the framework set out in BDO Seidman v. Hirshberg, generally ask whether a restrictive covenant meets several conditions before enforcing it:
- The restriction is no broader than necessary in time, geographic area, and scope of activity to protect the employer’s legitimate interest.
- It doesn’t impose an undue hardship on the employee.
- It isn’t injurious to the public, for example by cutting off access to a scarce professional service.
- It’s supported by a legitimate business interest, not just a general desire to avoid competition.
A one-year restriction limited to a specific metro area has a reasonable shot at surviving this test. A five-year, nationwide industry ban almost never does.
What Counts as a Legitimate Business Interest
Courts won’t enforce a non-compete just because an employer would prefer less competition. New York judges have consistently required proof of something specific worth protecting, such as trade secrets, confidential business information, or client relationships an employee built largely at the company’s expense rather than through their own independent efforts.
Businesses that rely heavily on confidential information should also examine how confidentiality clauses work alongside restrictive covenants, since a well-drafted NDA sometimes accomplishes the same protective goal, keeping client lists and pricing strategies out of a competitor’s hands, without the enforceability problems a broad non-compete carries. Pairing a tighter non-compete with a strong confidentiality agreement often produces better protection than an aggressive non-compete alone.
Restrictions Courts Typically Enforce vs. Strike Down
More likely to be enforced:
- A six- to twelve-month restriction tied to a specific service area
- Limits on soliciting clients the employee personally serviced
- Non-competes tied to the sale of a business, where the buyer paid for the goodwill being protected
- Agreements for senior executives with real access to strategic and financial information
More likely to be struck down:
- Multi-year bans covering an entire state or the whole country
- Restrictions applied to low-wage or entry-level workers with no access to sensitive information
- Non-competes with no connection to any protectable business interest
- Agreements offered with no advance notice and no separate consideration
When a non-compete arises from the sale of a business rather than an ordinary employment relationship, New York courts apply a more permissive standard, since the restriction protects the value a buyer paid for rather than an employer’s general interest in avoiding competition. Owners negotiating an asset or equity sale should loop in counsel who regularly structures deal terms and closing documents for NYC companies before non-compete language gets locked into the purchase agreement, since courts scrutinize these clauses differently once real money has changed hands.
The Non-Compete Reform Bill Moving Through Albany
The current bill, a successor to the version Governor Hochul vetoed in 2023, would prohibit non-compete agreements for most “covered individuals,” a category defined by economic dependence on an employer rather than job title or salary alone. It carves out two main exceptions:
- Highly compensated individuals earning above a set threshold (currently proposed around $500,000 annually, adjusted for inflation)
- Sales of a business, where an owner holding at least a fifteen percent stake agrees to a non-compete as part of selling that stake
Under the proposed legislation, any permitted non-compete would be subject to a maximum duration and compensation requirements during the restricted period. Violations would give employees a private right to sue, with liquidated damages up to $10,000 plus attorneys’ fees.
The proposed legislation includes a business-sale exception, but the details should be checked against the current bill language before publication. Companies with multiple owners should revisit how voting rights and buyout terms are documented among co-owners so restrictive covenants tied to an ownership exit remain enforceable no matter which standard ultimately applies.
Similar questions come up when a partner withdraws from a professional partnership and the remaining partners want to stop that person from opening a competing practice nearby. Firms that depend on this kind of protection should confirm the underlying terms governing partner withdrawal and profit-sharing actually address non-compete obligations, since silence on the issue tends to favor the departing partner once a dispute reaches a courtroom.
Limited liability companies face a related issue when a departing member also served as an employee or manager, since a non-compete clause buried inside a member agreement gets judged under different rules than one written into a standalone employment contract. LLCs should review whether their rules for member exits and management authority clearly separate these two roles, so a restrictive covenant doesn’t get thrown out on a technicality that has nothing to do with its substance.
Founders drafting restrictive covenants at the earliest stage of a company’s life face the same reasonableness test as any other employer, even before the business generates meaningful revenue. Early-stage companies putting these protections in place should build them into the paperwork used when a new venture is first organized, rather than trying to bolt them on later once key employees are already on board and harder to renegotiate with.
What New York Employers Should Do Now
- Audit existing non-compete language against the current reasonableness standard, not a template borrowed from another state.
- Limit restrictions to what’s genuinely necessary, both in duration and geography.
- Pair non-competes with narrower, more defensible tools like non-solicitation and confidentiality clauses.
- Track the pending legislation so agreements can be adjusted quickly if the law changes.
- Offer real consideration, such as a signing bonus or promotion, when introducing a non-compete mid-employment.
Employers weighing this step can also review when hiring paperwork for a new employee needs legal review before rolling out updated language on their own, since a non-compete drafted without counsel is one of the more common reasons these clauses get thrown out in litigation.
What Employees Should Do Before Signing
- Read the geographic and time restrictions carefully, and ask whether they’re negotiable.
- Request a copy of the signed agreement for personal records.
- Ask what specific business interest the company believes the clause protects.
- Consult an employment attorney before signing, especially if the role involves a promotion or raise tied to the agreement.
- Understand that a non-compete doesn’t automatically become void just because it feels unfair; it takes a court challenge to invalidate one.
Non-compete law in New York is shifting quickly, and getting the details wrong can leave a business unprotected on one end or leave an agreement unenforceable the moment it’s tested in court on the other. The business and employment attorneys at Omni Law P.C. help New York employers and business owners draft, review, and litigate restrictive covenants built to hold up under the current legal landscape, whatever direction the pending legislation ultimately takes.
Frequently Asked Questions
Is a non-compete agreement enforceable in New York?
Yes, if it’s reasonable in time, geography, and scope, protects a legitimate business interest, and doesn’t create undue hardship for the employee. Courts evaluate each agreement individually rather than applying a blanket rule.
How long can a non-compete last in New York?
There’s no fixed statutory limit under current law, but courts generally view periods beyond one to two years with skepticism unless the restriction is narrowly tailored. The pending reform bill would cap enforceable non-competes at one year.
Do New York non-competes need to include payment during the restricted period?
Not under current common law. Payment, or lack of it, is one factor courts may weigh when deciding whether an agreement is fair, but garden leave pay isn’t legally required today. The pending bill would make it mandatory for any non-compete that remains valid.
Can a non-compete apply to low-wage workers?
Courts are far less likely to enforce non-competes against low-wage or entry-level employees who lack access to trade secrets or significant client relationships, and the pending legislation would ban them for most such workers entirely.
What happens if I break a non-compete agreement in New York?
An employer can sue for breach of contract and seek an injunction blocking the new job or business activity, along with damages in some cases. Whether a court grants that relief still depends on whether the agreement was reasonable to begin with.