Commercial Non-Competes in New York: Are They Enforceable?

For years, non-compete agreements have been a go-to tool for businesses trying to protect their competitive edge. Employers use them to keep former employees from joining rivals, while businesses sometimes include them in commercial contracts—for example, when selling a business or entering into a joint venture.

But in New York, the enforceability of non-competes is narrowly limited, and recent trends show courts and lawmakers are increasingly skeptical of their use. Let’s break down where things stand today.

1. The General Rule: Reasonableness Is Key

New York courts evaluate non-competes under a reasonableness test, asking whether the restriction:

• Protects a legitimate business interest (such as trade secrets, confidential information, or goodwill);

• Imposes no undue hardship on the party bound by the restriction;

• Is not injurious to the public; and

• Is reasonable in scope, geography, and duration.

If the restriction is overly broad—say, barring a business from operating anywhere in the country for five years—it’s unlikely to survive judicial scrutiny.

2. Commercial vs. Employment Non-Competes

While employment non-competes face strict scrutiny, commercial non-competes—like those tied to the sale of a business or other commercial partnerships—are treated more leniently. Courts recognize that when someone sells their business, they shouldn’t be able to immediately undermine the buyer by competing with them.

For example, a seller of a restaurant who agrees not to open another restaurant within a 10-mile radius for three years will likely be bound by that agreement. That’s because the buyer paid for the business’s goodwill and customer base.

By contrast, if two companies sign a joint venture agreement with an indefinite non-compete covering broad markets where neither has real operations, a court may strike it down as overreaching.

3. Lessons from Twitchell v. Mechoshade (2024)

A recent New York Appellate Division case, Twitchell Tech. Prods. v. Mechoshade Sys. (2024), sheds light on how courts analyze restrictive covenants in ordinary commercial contracts.

• The court confirmed that such covenants are assessed under a rule of reason, balancing the protection of legitimate business interests against the burdens imposed and the potential harm to competition .

• Importantly, the court held that judges have the power to partially enforce overly broad commercial non-competes—just as they can with employment non-competes—by severing unreasonable portions while upholding the rest .

• In Twitchell, the restrictive covenant lacked any temporal or geographic limitation, applying worldwide and indefinitely. The court found this facially overbroad but declined to strike it entirely at an early stage, emphasizing that whether partial enforcement was appropriate would depend on further factual development .

The takeaway: even sweeping commercial non-competes may not be thrown out wholesale. Instead, New York courts may salvage reasonable parts of the agreement, particularly when both parties are sophisticated businesses represented by counsel.

4. Drafting Tips for Enforceable Commercial Non-Competes

• Tie the restriction to a legitimate interest: goodwill, trade secrets, or co-developed products.

• Keep the scope narrow: limit by geography and time wherever possible.

• Avoid indefinite restrictions: courts are highly skeptical of “forever” covenants.

• Use severability clauses: give courts the option to trim, not trash, the clause.

• Document negotiations: courts look more favorably on agreements reached between sophisticated parties with equal bargaining power.

5. Legislative Developments

In 2023, New York lawmakers passed a bill to ban most employment non-competes, but Governor Hochul vetoed it, signaling she might support a narrower ban. While this legislation didn’t directly address commercial non-competes, the political climate is trending toward restriction, not expansion.

Final Thought

Commercial non-competes in New York are still enforceable—if drafted thoughtfully. Courts will uphold them when they protect legitimate business interests and are reasonably limited, but they will strike or narrow covenants that are overreaching.

The Twitchell case shows that courts are willing to preserve and partially enforce commercial non-competes, even if parts of them are overbroad. Businesses should see this as both a warning and an opportunity: draft carefully, and your restrictive covenant may stand.

This blog is for informational purposes only and does not constitute legal advice. For guidance on drafting or enforcing restrictive covenants, consult legal counsel experienced in New York commercial and employment law.