In a competitive marketplace, protecting your business’s confidential information is essential. Whether you are onboarding new employees, negotiating partnership, or preparing for a potential acquisition, confidentiality and non-compete agreements are vital tools. But are these agreements enforceable in New York?
Understanding NDAs in a Business Context
What Is an NDA?
A Non-Disclosure Agreement (NDA) is a legally binding contract that restricts the sharing of confidential business information. Businesses use NDAs across a variety of contexts, including employee onboarding, vendor relationships, strategic partnerships, and mergers and acquisitions. NDAs typically protect trade secrets, proprietary data, financial information, and customer lists.
What Happens If Someone Breaches an NDA?
A breach of an NDA can result in serious legal and business consequences. The disclosing party may pursue damages, injunctive relief, and in some cases, recovery of liquidated damages outlined in the contract. Beyond legal exposure, a breach can lead to reputational harm and loss of competitive advantage.
Navigating Disclosure Needs
Occasionally, parties bound by NDAs may need to disclose information – for example, in legal proceedings or internal company operations. Most NDAs include exceptions for information that becomes public or must be disclosed by law. Still, it is critical to seek legal advice before making any disclosures to avoid violating the agreement.
For example, a former employee interviewing for a new job may be asked questions that touch on prior confidential work. Without legal advice, they risk breaching their NDA, even unintentionally.
Special Case: NDAs That Cover Unlawful Behavior
Absent meeting certain enhanced legal requirements, New York law generally prohibits the enforcement of NDAs that attempt to conceal unlawful acts such as sexual harassment or retaliation in the workplace. Even if signed, such clauses may be unenforceable under state law. This underscores a key point: not all NDAs are enforceable, highlighting the importance of seeking legal guidance.
Are Non-Competes Enforceable in New York?
Unlike NDAs, non-compete agreements are generally disfavored under New York law. However, courts may enforce them under specific circumstances. To be enforceable, a non-compete must:
- Protect a legitimate business interest (e.g. trade secrets, client relationships)
- Be reasonable in duration and geographic scope
- Not impose undue hardship on the employee
- Not harm the public interest
Case law examples:
- BDO Seidman v. Hirshberg – A non-compete was enforceable when it protected client relationships the employee had developed at the firm’s expense.
- Reed, Roberts Assocs. v. Strauman – The court struck down a broad non-compete because it imposed unnecessary restrictions on the employee’s ability to work.
Factors That Influence Enforceability
Certain additional and key factors affect whether a non-compete will hold up in court:
- Nature of the agreement: Clauses in a sale-of-business context are more likely to be enforced than those in standard employment agreements.
- Position of the employee: Senior executives are more likely to be the subject to enforceable restrictions than lower-level employees.
- Reason for departure: Courts may view non-competes more skeptically when an employee is terminated without cause as opposed to voluntary resignation or if an employee is terminated for cause.
- Drafting: Vague or overly broad agreements are at greater risk of being invalidated. Therefore, it is important to have clear, concise, and narrowly tailored language.
Even when enforceability is uncertain, how you draft your agreements can make a critical difference. Poorly written NDAs and non-competes are more likely to be challenged—or struck down entirely. Below are practical drafting tips.
Best Practices for NDAs
- Clearly define “confidential information”: Avoid vague definitions. Spell out what types of information are protected (e.g., customer lists, proprietary processes, financial data).
- Include exceptions and expiration of obligations: Allow for disclosure when information becomes public, or when required by law,.
- Use plain language where possible: Avoid legalese. The more readable the agreement, the more likely it is to be understood—and enforced.
Best Practices for Non-Competes
- Limit restrictions to what is necessary: Overbroad limitations can backfire. Tailor your non-compete to specific roles, markets, or customer relationships.
- Be specific: Include clearly defined geographic areas, time periods, and the scope of restricted activity.
- Include consideration: Courts look for evidence that the employee received something in exchange—such as a bonus, promotion, or specialized training.
- Avoid overreaching: Courts in New York may strike down an entire agreement if it is too broad or burdensome. A non-compete is more likely to be enforced if it is used to protect a legitimate business interest.
Practical Takeaways for Business Owners
NDAs remain valuable when drafted clearly and tailored to specific business needs. Non-competes are enforceable only in narrow situations. Legal review is critical when drafting, revising, or enforcing these agreements. Stay informed of legal developments to avoid non-compliance. Further, consider alternatives to non-competes with robust onboarding and exit procedures.
Conclusion
Protecting your business’s confidential information and customer relationships is more important than ever—but doing so within the boundaries of the law is equally essential. Understanding how courts treat NDAs and non-competes can help your company avoid costly mistakes and maintain a competitive edge.
When in doubt, consult legal counsel to ensure your agreements are unenforceable, fair, and aligned with current regulations. Contact a member of the Romano Law team today.
Contributions to this blog by Michael Touma.