Fired workers in New York are not bound to non-compete agreements if they were terminated without cause.
Non-Compete Agreements Void if Employee is Fired Without Cause
Arakelian v. Omnicare Inc. concerned a Vice President of Business Development at a Fortune 500 healthcare company who was terminated after the company was acquired by Omnicare Inc. As part of her severance agreement, the worker had signed a promise not to compete with the company for a period of two years after her termination and not to solicit former clients or workers for the same period of time. The court in its ruling affirmed the New York rule on non-compete agreements that they will not be enforced if the termination was not for cause.
This New York rule is based on the assumption that a non-compete agreement can only be enforced if an employer would be willing to still hire the worker. This willingness to hire creates the “mutuality of agreement” necessary to affirm the restrictions.
This New York rule sets the state apart from most other jurisdictions that will only strike down a non-compete or non-solicitation agreement if it is unreasonably expansive in time or scope. In New York, this analysis can only occur after an employee voluntarily quits or is fired for cause and had signed a non-compete or non-solicitation agreement.
This rule does not just apply to New York employees, however, due to the nature of many non-compete agreements and non-solicitation provisions. As many non-compete agreements cover multiple states or even entire regions, what this rule means is that these agreements will not apply for competition or solicitation within New York state, regardless of the residency or other status of the competing or soliciting worker. So in this case, a Virginia resident working for a Maryland company who signed the non-compete agreement in Maryland cannot be kept from accepting a competing job in New York if she was fired without cause. This rule not only protects New York workers but is sure to attract such workers to New York who may be restricted from working in other states that do not have this rule.
Although not explicitly addressed by the court in its opinion, it seems that a confidentiality agreement signed by an employee may not fall under this rule. The plaintiff did not argue the point so the court did not reach the question and it seems no case has directly addressed the issue. If so, that means that a former employee may still be restricted from using confidential client information in order to compete for or solicit clients, and other actions that could violate the agreement. This issue is sure to come up again in New York court and when it does this question may finally be answered.
Until then, in New York, employers are severely limited in their attempts to restrict their former employees’ freedom of employment if they are the ones who led to their termination in the first place. This puts New York at the forefront of states in the nation in its protection of any employee’s right to work.