The validity of non-compete clauses can be a hot-button issue, especially in New York, where the laws regarding non-compete clauses vary widely and change often. A question that often arises is whether these types of clauses are enforceable if an employer terminates an employee without cause.
What does “without cause” mean?
When an employee is fired “without cause,” it means the termination is for reasons other than a serious breach of conduct. On the other hand, if an employer fires someone for misconduct, that is a termination with cause.
In some cases, employment agreements explicitly lists prohibited conduct, such as if an employee:
- Violates company policies
- Commits fraud
- Makes threats
- Is violent
- Commits an ethics violation
Firings for these reasons are generally with cause, while termination for other reasons, or no reason at all, can be without cause.
This is an important distinction because it can determine whether the courts will enforce a non-compete agreement to which that employee is a party.
What are the courts saying?
In New York, some courts have decided not to enforce non-compete clauses for employees terminated without cause, while other courts have made the opposite ruling. One critical case courts often reference is Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 N.Y.2d 84 (1979), in which the court did not enforce a provision in an employee’s non-compete agreement after he was fired without cause. The court in that case reasoned that the provisions could not be enforced if the termination of the employee was involuntary and without cause.
However, there remains a lack of clarity regarding the enforceability of non-compete clauses. In addition to the issue of firing with or without cause, several factors have swayed courts’ opinions in this area such as:
- Where in New York ithe business is operating
- Contractual obligations
- Whether the employer will offer anything in exchange for the employee continuing to abide by the agreement
In other words, depending on several considerations, an employee may or may not face penalties for breaching the terms of a non-compete agreement. The answer is not as clear as some would like.
Although non-compete agreements are a popular tool for employers looking to protect their business interests, courts and individuals often do not favor these efforts to restrict employee options. When conflicts arise about the enforceability of a non-compete clause, consulting an attorney can help parties assess their options and legal rights.