DISCLAIMER: This post provides general information about non-competition clauses in New York as of March 19, 2024. It does not contain legal advice. Before you choose to have your employees sign agreements that contain “non-compete” clauses, we recommend you consult an employment attorney in the jurisdiction(s) where your employees work. This is especially important in light of the recent FTC ban taking effect on September 4, 2024.
Employment Is a Two-Way Risk
Each time a business hires a new employee to perform services for it, the business is taking a number of risks:
- Will the employee add value to the existing workforce or cause distractions and disruptions?
- Will they provide clients the level of service the business is committed to?
- Will they collect pay for hours not worked or work not performed?
- Will they drain the business’ time, money, or energy?
- Will they take other valuable resources, such as business processes and client lists?
Similarly, the new employee wonders:
- Will my employment add value to my life or will it infringe upon my personal goals?
- Will I be treated well by the business, my co-workers, and the clients?
- Will I be paid on time and in full for my work?
- How much of my time, money, and energy will it take to do the job well?
- Does my employer operate with integrity?
Ideally, they have both done due diligence and decided the risk of a bad experience is relatively low. Yet there are additional actions they can each take to reduce the risks further. The employer requires the employee to sign certain agreements. The employee negotiates performance-based raises, bonuses, or other opportunities. Together, they lay the foundation for a powerful partnership toward mutually-beneficial goals.
Set Expectations and Limitations Immediately
Common agreements employers require new employees to sign address:
- Confidentiality. Employees agree to maintain the confidentiality of business data, such as private client lists, business processes, or financial information.
- Non-Disclosure. They agree not to disclose confidential information.
- Non-Competition. They promise not to open a competing business or use confidential information to compete, including with a new employer.
You will often see these in the same lengthy agreement littered with legal terminology, but a simple one might also suffice:
While working for [employer name], at times you will have access to confidential information that we take several actions to protect from disclosure to people and organizations that could do harm with it. For example, disclosing client lists or business processes to a competitor could bankrupt the business and cause you and your co-worker to lose your jobs. Disclosing the personally identifiable information of clients or co-workers could subject them to identity fraud and devastating losses. By signing below, you agree to treat property that is not yours with the utmost care. You also promise not to open a competing business for three years after your employment at [employer name] has ended.
WARNING: Effective September 4, 2024, the Federal Trade Commission (FTC) has banned most non-competition clauses. If you you are still using them, we recommend you consult an employment attorney in each jurisdiction where your employees are working.
A Contract Is Not a Weapon
Most people think of a contract as a physical or electronic document they have to sign before receiving a benefit, such as employment or payment for services performed as a vendor (independent contractor). But a contract can also be spoken if it:
- Is not an agreement that requires a written document (e.g., real estate transfer, assumption of debt)
- Is not illegal or otherwise unenforceable
- Contains an offer, an acceptance, and an exchange of value
The written version of a contract is intended to memorialize the agreements made during negotiations, because human memories are faulty. Yet businesses often conduct friendly negotiations only to turn them hostile once the “standard agreement” is delivered usually by the larger of the two businesses. Employers are no different. Usually in the more powerful position, they begin the employment relationship with a clear message that they intend to exercise as much control as possible. They overwhelm the new employee with confusing language, restatements of governing law, and optional provisions they hope the employee will accept, even if they are against the employee’s interests.
Perhaps this worked before the internet, but employees are a lot more aware of their rights than in decades past. Government agencies like the Departments of Labor, Equal Employment Opportunity Commission, and local Divisions of Human Rights have informative websites and responsive service teams to help employees. They often know their rights and responsibilities better than employers do. This only supports the need to shift your mindset:
Employment is a mutually beneficial partnership toward aligned goals.
If you’re trying to seize control with a weaponized contract, you will probably have high instances of:
- Employee disengagement (quiet quitting) and turnover (actual quitting)
- Discrimination, sexual harassment, and other disruptive complaints
- Safety violations and other non-compliance
Ready to Improve Your Contracts?
What the FTC Got Wrong In It’s Recent Ban of Non-Competition Clauses