Unlike in the Ninth Circuit, in states comprising the Second Circuit, common law generally governs the use of restrictive covenants. Still, many of the specific factors for analysis in these states will be familiar, given the widely accepted “reasonability” standard for adjudicating the propriety of such agreements. Both the Vermont and N.Y. State Legislatures have introduced bills restricting the use of restrictive covenants, but to date, neither bill has passed. Vermont’s iteration, known as House Bill 556, would generally ban “agreement[s] not to compete or any other agreement that restrains an individual from engaging in a lawful profession, trade, or business.” The bill leaves carve outs for (1) restrictive covenants in the sale of an ownership interest in a business entity, or dissolution of a partnership, and (2) agreements formed to prohibit the disclosure of trade secrets. The New York law, known as Bill No. A07864A, takes a different approach. It outlaws any non-compete agreement purporting to limit an employee making less than $75,000 from seeking employment within a certain geographic area, for a specified period of time, with a particular employer or in a particular industry.

State

Law governing restrictive covenants

Restrictive covenants in employment agreements will be enforced:

New York

Generally, restrictive covenants are governed by the common law. See BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999); Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303 (1976).

Restrictive covenants in the broadcast industry are illegal pursuant to N.Y. Lab. Law § 202-k.

  • Except in the broadcasting context, if the limitations found therein are reasonable in both time and area,
  • Necessary to protect employer’s legitimate interests,
  • Not harmful to the general public, and
  • Not unreasonably burdensome to the employee.
Vermont
  • Unnecessary to protect the employer, or
  • Unnecessarily restrictive of the rights of the employee,
  • In the context of the subject matter of the contract, and the relevant circumstances and conditions.
Connecticut

Generally, restrictive covenants are governed by the common law. See Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (2006); Scott v. Gen. Iron & Welding Co., 171 Conn. 132 (1976).

In the limited context of physician non-competes entered into after July 1, 2016, Conn. Gen. Stat. § 20-14p governs.*

  • Except against physicians, only if
    • They are necessary to protect a legitimate business interest, including trade secrets and customer lists,
    • Are reasonably limited in time, geography, and practice restrictions to protect those business interests, and
    • Otherwise consistent with the needs of the public, including the employee’s need to earn a living, and the public’s need for the employee’s presence in the labor pool.

* Conn. Gen. Stat. § 20-14p states that no restrictive covenant may (1) restrict a physician’s competitive activities for more than one year, or in a geographic region greater than fifteen miles from the primary site where the physician practices, or (2) be enforced against a physician if (a) the agreement containing the covenant was not made in anticipation, or as a part of, a partnership or ownership agreement and such agreement expires, unless the employer makes a bona fide effort to renew the contract on the same or similar terms, or (b) if the physicians employment or contract was terminated by the employer, unless it was terminated for cause.