The enforceability of restrictive covenants, particularly non-compete agreements, can be very difficult for employers to navigate, especially for companies in their “start-up” phase. Technology companies in particular face challenges in structuring non-competes that balance their need to attract talent with their need to protect confidential and sensitive information, while preventing unfair competition by former employees. Many states have developed common law precedent as to what constitutes a permissible non-compete, while others have enacted statutes. Emerging technology companies must be aware of the laws in their jurisdictions in order to draft enforceable restrictive covenants that adequately protect business needs. The below chart presents a summary of employee non-competition laws and applicable standards in four states where emerging technology companies often do business: California, Massachusetts, New York, and Texas.

Topic CA MA NY TX
Statutes/ regulations governing non-competes Sections 16600 to 16607 of the California Business and Professions Code govern non-competes. Massachusetts Noncompetition Agreement, Act, M.G.L. c. 149, § 24L (effective for agreements made on or after Oct. 1, 2018). No statute or regulation governing non-competes generally. Texas Covenants Not to Compete Act, Tex Bus. & Com. Code Ann. §§ 15.50 to 15.52.
Essential Elements Post-employment non-compete agreements are unlawful except in the context of a sale of a business.

To be valid and enforceable, a non-compete agreement must:

-be in writing and signed by both the employer and employee;

-expressly state that the employee may consult with an attorney before signing;

-be provided, if made before employment begins, to the employee by the earlier of either: (a) formal offer of employment; or (b) at least 10 business days before employment begins;

-be supported, if made after employment begins but not in connection with termination of employment, by fair and reasonable consideration independent from continued employment; and provided to the employee at least 10 business before agreement is effective;

-be no broader than necessary to protect the following legitimate interests of the employer: (a) trade secrets; (b) confidential information that is not a trade secret; or (c) the employer’s goodwill.

New York common law disfavors non-compete agreements as an unreasonable restraint of trade.

Courts may enforce a non-compete if the restriction is reasonable. Although courts evaluate non-competes on a case-by-case basis, a non-compete can be enforced only if it:

-is no greater than required to protect an employer’s legitimate protectable interests;

-does not impose undue hardship on the employee;

-does not cause injury to the public;

-is reasonable in: duration; and geographic scope

New York courts have recognized the following protectable interests that may be sufficient to support a reasonable non-compete:

-employer’s trade secrets or confidential information;

-employer’s goodwill;

-employer’s interest in preventing loss to a competitor of an employee whose services are special, unique, or extraordinary.

To be enforceable under Texas law, a non-compete must:

-be ancillary to or part of an otherwise enforceable agreement when the agreement is made;

-be reasonable concerning time, geographical area, and scope of activity to be restrained;

-impose no greater restraint than necessary to protect the employer’s (or promisee’s) goodwill or other business interest.

 

Burden of Proof Plaintiff-former employer bears the burden of proving that a statutory exception applies to the general rule prohibiting non-compete agreements. Employer has the burden of proof to enforce a non-compete.

Party seeking enforcement of the non-compete (typically, the employer) has the burden of proof.

 

If primary purpose of the ancillary agreement is to obligate the employee to provide personal services, the employer has the burden of proof to show that the covenant is reasonable.
Circumstances of Departure Relevant Does not matter whether employer or employee terminates the relationship. Post-employment non-competes are unenforceable in California unless a narrow exception applies.

Employers may not enforce non-compete agreements entered into on or after Oct. 1, 2018, against employees who have been:

-terminated without cause;

-laid off.

 

While NY courts are not entirely in agreement regarding whether non-compete agreements are enforceable against employees who have been terminated by the employer without cause, an increasing number of cases seem to find that they are not enforceable under those circumstances.

If the termination constitutes a breach of contract by an employer, any post-employment non-compete in that agreement cannot be enforced by the breaching employer.

Unless non-compete says otherwise, whether employee terminated or voluntarily departed is not-relevant.
Consideration Not applicable, as non-competes are not enforceable in California and are void against public policy, unless narrow exception applies.

Massachusetts courts have determined that the employment relationship itself is sufficient consideration for a non-compete agreement signed at the beginning of the employment relationship.

For agreements signed after hire, continued employment is not sufficient consideration as required under the Massachusetts Noncompetition Agreement Act.

Initial employment, and under certain circumstances, continued employment, suffices.

Payments to the employee.

Intangibles, including the employee’s receipt of increased:

-knowledge;

-skill; or

-professional status.

To be considered sufficient in Texas, consideration must give rise to the employer’s interest in restraining the employee from competing, and the covenant must be designed to enforce the employer’s consideration or return promise.
Time Range Not applicable, as non-competes are not enforceable in California and are void against public policy, unless narrow exception applies.

Massachusetts Noncompetition Agreement Act prohibits a restricted period of longer than one year from the date the employment ends. A restricted period may extend to a maximum of two years only if the employee:

-breached her fiduciary duty to the employer; or

-has unlawfully taken the employer’s property, either physically or electronically.

Courts have repeatedly held that six months or less is reasonable.

Courts have found longer restrictions to be either reasonable or unreasonable depending on facts of particular case.

 

Time restrictions ranging from two to five years have repeatedly been enforced in non-competes.
Geographic Restrictions (or other scope of enforcement) Not applicable, as non-competes are not enforceable in California and are void against public policy, unless narrow exception applies.

Under the Massachusetts Noncompetition Agreement Act, a geographic restriction is presumed reasonable when the reach is limited to regions where, for the last two years of employment, the employee:

-provided services;

-had a material presence of influence.

When determining whether a non-compete is reasonable in its geographic reach, New York courts focus on the facts and circumstances of each case.

Limitations based on the former employee’s territory during employment are valid.

Another approach, applicable in some circumstances, is to limit the geographic restriction to the area of the employer’s operations.

Click here to read the full GT Alert, “A Non-Compete Law Roadmap for Tech Start-Ups in Key Jurisdictions.”

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Photo of Jerrold Goldberg Jerrold Goldberg

Jerrold F. Goldberg Co-Chairs the firm’s Labor & Employment Practice’s Labor-Management Relations group. He has been practicing in virtually all aspects of labor and employment law since 1979, including the traditional labor/union-management area, employment discrimination, executive employment, severance agreements and wage and hour…

Jerrold F. Goldberg Co-Chairs the firm’s Labor & Employment Practice’s Labor-Management Relations group. He has been practicing in virtually all aspects of labor and employment law since 1979, including the traditional labor/union-management area, employment discrimination, executive employment, severance agreements and wage and hour laws. Jerry exclusively represents management clients primarily in the real estate and hospitality industries in transactional matters, including commercial and residential building and hotel sales and purchases, administrative compliance, such as 421-a prevailing wage issues, and lease, property management and concessionaire relationships, as well as all aspects of labor and employment litigation. This includes traditional labor litigation, such as union management arbitration, N.L.R.B. representation and unfair labor practice proceedings, and strike and picketing injunctive actions, wage and hour litigation involving misclassification, overtime and service charge/gratuity issues, and employment discrimination and restrictive covenant litigation in federal and state courts and administrative agencies.

Photo of Shira R. Yoshor Shira R. Yoshor

Shira focuses her practice on labor and employment matters. She also has experience with a wide variety of complex commercial litigation. She regularly represents management in virtually all aspects of labor and employment law. She counsels employers on managing workplace issues, drafts employment…

Shira focuses her practice on labor and employment matters. She also has experience with a wide variety of complex commercial litigation. She regularly represents management in virtually all aspects of labor and employment law. She counsels employers on managing workplace issues, drafts employment agreements, handbooks and policies, investigates and litigates whistleblower claims, discrimination and retaliation claims, and claims involving all sorts of restrictive covenants. Shira partners with her clients to help them achieve their strategic business and legal goals wherever they face challenges.

Photo of Angeles Garcia Cassin Angeles Garcia Cassin

Angeles Garcia Cassin focuses her practice on commercial litigation and labor and employment matters. In her preventative employment practice, she advises clients and defends against claims arising under the Fair Labor Standards Act, the Americans with Disabilities Act, the Older Workers Benefits Protection…

Angeles Garcia Cassin focuses her practice on commercial litigation and labor and employment matters. In her preventative employment practice, she advises clients and defends against claims arising under the Fair Labor Standards Act, the Americans with Disabilities Act, the Older Workers Benefits Protection Act and the Family and Medical Leave Act. Angeles also handles matters related to Title VII discrimination and retaliation as well as workers’ compensation retaliation claims. As a commercial litigator, Angeles helps represent companies with disputes over non-compete agreements, misappropriation of trade secrets, breach of fiduciary duty, and breach of contract.

Photo of Jack Gearan Jack Gearan

Jack S. Gearan is a shareholder in the Boston office of Greenberg Traurig, LLP. He concentrates his practice in the areas of Labor & Employment and Litigation, where he defends companies and public institutions in labor and employment, business, and consumer actions, including

Jack S. Gearan is a shareholder in the Boston office of Greenberg Traurig, LLP. He concentrates his practice in the areas of Labor & Employment and Litigation, where he defends companies and public institutions in labor and employment, business, and consumer actions, including class and collective actions. He is experienced in complex employment litigation and trials, and frequently handles state and federal whistleblower claims, non-compete and restrictive covenant litigation, trade secret, wage and hour litigation, and individual employee discrimination, harassment, and retaliation litigation and arbitrations. Jack also focuses his practice on handling pharmaceutical and medical device products liability cases.

Jack’s business litigation practice covers a variety of business torts, including misrepresentation, fraud, contract disputes, and claims under Massachusetts General Laws Chapter 93A – the Massachusetts unfair trade practices statute

In addition to defending clients in litigation when necessary, Jack provides counsel to senior management and human resource personnel on various employment law compliance matters, such as leaves of absence, exempt status classification under the FLSA and state law, employee discipline and restrictive covenant agreements. Jack is also regularly called upon by clients to conduct outside independent investigations of sensitive personnel issues or threatened legal actions. Additionally, Jack has advised companies regarding employment law in connection with various corporate transactions, including mergers, acquisitions, and reductions in force.

Photo of Ashley M. Farrell Pickett Ashley M. Farrell Pickett

Ashley M. Farrell Pickett defends companies in complex employment class and representative litigation in both state and federal courts throughout the country. She has deep experience representing large and small employers alike at all stages of high stakes litigation—from pre-trial demands through trial…

Ashley M. Farrell Pickett defends companies in complex employment class and representative litigation in both state and federal courts throughout the country. She has deep experience representing large and small employers alike at all stages of high stakes litigation—from pre-trial demands through trial or arbitration, settlement, and on appeal.

Ashley has litigated a wide range of employment claims facing companies, including wage and hour compliance, discrimination, retaliation, sexual harassment, leaves of absence, employee accommodations, personnel policies, and employment agreements. She is also skilled in advising employers on various issues to ensure compliance and avoid potentially costly litigation before it can arise.