Non-competition: Texas vs. California vs. New York

The otherwise enforceable agreement must give rise to the "interest worthy of protection" by the covenant not to compete. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 682 (Tex. 1990) (citing § 187 comment b of the Restatement and noting that business goodwill and confidential or proprietary information are examples of such worthy interests). Therefore, in order for a covenant not to compete to be ancillary to an otherwise enforceable agreement between employer and employee: (1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and (2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement. [14] Unless both elements of the test are satisfied, the covenant cannot be ancillary to or a part of an otherwise enforceable agreement, and is therefore a naked restraint of trade and unenforceable.

Consideration for a noncompete that is reasonably related to an interest worthy of protection, such as trade secrets, confidential information or goodwill, satisfies the statutory nexus; and there is no textual basis for excluding the protection of much of goodwill from the business interests that a noncompete may protect.

In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding , we took another step *775 away from Light 's restrictiveness and toward greater enforceability of noncompete agreements. 289 S.W.3d 844 (Tex.2009). The employer did not expressly promise to provide the employee with confidential information, but the employee's position mandated such information be provided. Id. at 850 . The employee promised not to disclose confidential information obtained. Id. We held that "[w]hen the nature of the work the employee is hired to perform requires confidential information to be provided... the employer impliedly promises confidential information will be provided

we hold that a covenant not to compete is not unenforceable under the Covenants Not to Compete Act solely because the employer's promise is executory when made. If the agreement becomes enforceable after the agreement is made because the employer performs his promise under the agreement and a unilateral contract is formed, the covenant is enforceable if all other requirements under the Act are met.

(a) Notwithstanding Section 15.05 and subject to any applicable provision of Subsection (b) and Section 15.501 , a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.

The criteria for enforceability of a covenant not to compete provided by Sections 15.50 and 15.501 and the procedures and remedies in an action to enforce a covenant not to compete provided by Section 15.51 are exclusive and preempt other law, including common law.

(2) the covenant must provide for a buyout of the covenant by the physician in an amount that is not greater than the physician's total annual salary and wages at the time of termination of the contract or employment; (3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated; and

(4) the covenant must: (A) expire not later than the one-year anniversary of the date the contract or employment has been terminated; (B) limit the geographical area subject to the covenant to no more than a five-mile radius from the location at which the physician primarily practiced before the contract or employment terminated; and (C) have terms and conditions clearly and conspicuously stated in writing.

(a) In this section, "health care practitioner" means: (1) a person licensed by the State Board of Dental Examiners to practice dentistry in this state; (2) a person licensed under Chapter 301 , Occupations Code, to engage in professional or vocational nursing; or (3) a physician assistant licensed under Chapter 204 , Occupations Code. (b) A covenant not to compete relating to the practice of dentistry or nursing, or practice as a physician assistant, as applicable, is not enforceable against a health care practitioner unless the covenant: (1) provides for a buyout of the covenant by the health care practitioner in an amount that is not greater than the practitioner's total annual salary and wages at the time of termination of the practitioner's contract or employment; (2) expires not later than the one-year anniversary of the date the contract or employment has been terminated; (3) limits the geographical area subject to the covenant to no more than a five-mile radius from the location at which the health care practitioner primarily practiced before the contract or employment terminated; and (4) has terms and conditions that are clearly and conspicuously stated in writing.

The former judicial requirement that the "consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing" is not anchored in the text of the Act. See Light, 883 S.W.2d at 647 . We attempt to construe the Legislature's words.

If the trial court determines that any particular provision is unreasonable or overbroad, the trial court has the authority to reform the Agreement and enforce it by injunction with reasonable limitations.

Under Light, for a covenant to be "ancillary to or part of" an enforceable agreement under section 15.50, "(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and (2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement."

a unilateral contract formed when the employer performs a promise that was illusory when made can satisfy the requirements of the Act.

(d) Notwithstanding any other law, a covenant not to compete relating to the practice of medicine is void and unenforceable against a person licensed as a physician by the Texas Medical Board if the physician is involuntarily discharged from contract or employment without good cause. For purposes of this subsection, "good cause" means a reasonable basis for discharge of a physician from contract or employment that is directly related to the physician's conduct, including the physician's conduct on the job or otherwise, job performance, and contract or employment record.

(b) A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements: (1) the covenant must: (A) not deny the physician access to a list of the physician's patients whom the physician had seen or treated within one year of termination of the contract or employment; (B) provide access to medical records of the physician's patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008 , Occupations Code; and (C) provide that any access to a list of patients or to patients' medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

(b-1) For the purposes of Subsection (b), the practice of medicine does not include managing or directing medical services in an administrative capacity for a medical practice or other health care provider. (c) Subsection (b) does not apply to a physician's business ownership interest in a licensed hospital or licensed ambulatory surgical center.

We hold that the noncompetition agreement here is invalid under section 16600, and we reject the narrow-restraint exception urged by Andersen. Noncompetition agreements are invalid under section 16600 in California, even if narrowly drawn, unless they fall within the applicable statutory exceptions of section 16601, 16602, or 16602.5. In addition, we conclude that the TONC at issue in this case did not purport to release Andersen from any nonwaivable statutory claims and therefore is not unlawful under Labor Code sections 2802 and 2804. We therefore affirm in part and reverse in part the Court of Appeal judgment, and remand the matter for proceedings consistent with the views expressed above.

In context, section 16600 is best read not to render void per se all contractual restraints on business dealings, but rather to subject such restraints to a rule of reason.

(a) It shall be unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter. (b) (1) For current employees, and for former employees who were employed after January 1, 2022, whose contracts include a noncompete clause, or who were required to enter a noncompete agreement, that does not satisfy an exception to this chapter, the employer shall, by February 14, 2024, notify the employee that the noncompete clause or noncompete agreement is void. (2) Notice made under this subdivision shall be in the form of a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address of the employee or former employee. (c) A violation of this section constitutes an act of unfair competition within the meaning of Chapter 5 (commencing with Section 17200).

Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein. For the purposes of this section, “business entity” means any partnership (including a limited partnership or a limited liability partnership), limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or corporation. For the purposes of this section, “owner of a business entity” means any partner, in the case of a business entity that is a partnership (including a limited partnership or a limited liability partnership), or any member, in the case of a business entity that is a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or any owner of capital stock, in the case of a business entity that is a corporation. For the purposes of this section, “ownership interest” means a partnership interest, in the case of a business entity that is a partnership (including a limited partnership a limited liability partnership), a membership interest, in the case of a business entity that is a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or a capital stockholder, in the case of a business entity that is a corporation. For the purposes of this section, “subsidiary” means any business entity over which the selling business entity has voting control or from which the selling business entity has a right to receive a majority share of distributions upon dissolution or other liquidation of the business entity (or has both voting control and a right to receive these distributions.)

(a) Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. (b) (1) This section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter. (2) This subdivision does not constitute a change in, but is declaratory of, existing law. (c) This section shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed. (b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California. (c) An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter. (d) An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation. (e) (1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both. (2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney’s fees and costs.

(a) Any partner may, upon or in anticipation of any of the circumstances described in subdivision (b), agree that he or she will not carry on a similar business within a specified geographic area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein. (b) Subdivision (a) applies to either of the following circumstances: (1) A dissolution of the partnership. (2) Dissociation of the partner from the partnership.

Any member may, upon or in anticipation of a dissolution of, or the termination of his or her interest in, a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction recognizing such a series), agree that he or she or it will not carry on a similar business within a specified geographic area where the limited liability company business has been transacted, so long as any other member of the limited liability company, or any person deriving title to the business or its goodwill from any such other member of the limited liability company, carries on a like business therein.

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception.

We also hold that a rule of reason applies to determine the validity of a contractual provision by which a business is restrained from engaging in a lawful trade or business with 40 IXCHEL PHARMA, LLC v. BIOGEN, INC. Opinion of the Court by Liu, J. another business. Section 2.13 of the Biogen-Forward Agreement is such a restraint because it prevents Forward from collaborating with Ixchel or any other partner in the development of treatments containing the active ingredient DMF. Its validity under section 16600 must therefore be evaluated based on a rule of reason. We express no view on the validity of the agreement at issue.

(a) Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. (b) (1) This section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter. (2) This subdivision does not constitute a change in, but is declaratory of, existing law.

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed. (b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.

Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein. For the purposes of this section, “business entity” means any partnership (including a limited partnership or a limited liability partnership), limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or corporation. For the purposes of this section, “owner of a business entity” means any partner, in the case of a business entity that is a partnership (including a limited partnership or a limited liability partnership), or any member, in the case of a business entity that is a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or any owner of capital stock, in the case of a business entity that is a corporation. For the purposes of this section, “ownership interest” means a partnership interest, in the case of a business entity that is a partnership (including a limited partnership a limited liability partnership), a membership interest, in the case of a business entity that is a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction that recognizes such a series), or a capital stockholder, in the case of a business entity that is a corporation. For the purposes of this section, “subsidiary” means any business entity over which the selling business entity has voting control or from which the selling business entity has a right to receive a majority share of distributions upon dissolution or other liquidation of the business entity (or has both voting control and a right to receive these distributions.)

(a) Any partner may, upon or in anticipation of any of the circumstances described in subdivision (b), agree that he or she will not carry on a similar business within a specified geographic area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein. (b) Subdivision (a) applies to either of the following circumstances: (1) A dissolution of the partnership. (2) Dissociation of the partner from the partnership.

Any member may, upon or in anticipation of a dissolution of, or the termination of his or her interest in, a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction recognizing such a series), agree that he or she or it will not carry on a similar business within a specified geographic area where the limited liability company business has been transacted, so long as any other member of the limited liability company, or any person deriving title to the business or its goodwill from any such other member of the limited liability company, carries on a like business therein.

(a) It shall be unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter. (b) (1) For current employees, and for former employees who were employed after January 1, 2022, whose contracts include a noncompete clause, or who were required to enter a noncompete agreement, that does not satisfy an exception to this chapter, the employer shall, by February 14, 2024, notify the employee that the noncompete clause or noncompete agreement is void. (2) Notice made under this subdivision shall be in the form of a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address of the employee or former employee. (c) A violation of this section constitutes an act of unfair competition within the meaning of Chapter 5 (commencing with Section 17200).

(c) An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter. (d) An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation. (e) (1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both. (2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney’s fees and costs.

(c) This section shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.

(a) For purposes of this section, the following definitions apply: (1) “Contract” includes a promise, undertaking, contract, or agreement, whether written or oral, express or implied. (2) “Debt” means money, personal property, or their equivalent that is due or owing or alleged to be due or owing from a natural person to another person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service, regardless of whether the debt is certain, contingent, or incurred voluntarily. (3) “Debt collector” has the same meaning as defined in subdivision (c) of Section 1788.2 of the Civil Code. (4) “Employer” means any person or entity that employs workers. “Employer” includes any parent company, subsidiary, division, affiliate, contractor, hiring party, or third-party agent of an employer. (5) “Freelance worker” has the same meaning as defined in subdivision (a) of Section 18101. (6) “Misconduct” has the same meaning as in Section 1256 of the Unemployment Insurance Code. (7) “Penalty, fee, or cost” includes, but is not limited to, a replacement hire fee, retraining fee, replacement fee, quit fee, reimbursement for immigration or visa-related costs, liquidated damages, lost goodwill, and lost profit.

(b) (1) Except as provided in paragraph (2), for contracts entered into on or after January 1, 2026, it shall be unlawful to include in any employment contract, or to require a worker to execute as a condition of employment or a work relationship a contract that includes, a contract term that does any of the following: (A) Requires the worker to pay an employer, training provider, or debt collector for a debt if the worker’s employment or work relationship with a specific employer terminates. (B) Authorizes the employer, training provider, or debt collector to resume or initiate collection of or end forbearance on a debt if the worker’s employment or work relationship with a specific employer terminates. (C) Imposes any penalty, fee, or cost on a worker if the worker’s employment or work relationship with a specific employer terminates.

(2) This section does not apply to any of the following: (A) A contract entered into under any loan repayment assistance program or loan forgiveness program provided by a federal, state, or local governmental agency. (B) A contract related to the repayment of the cost of tuition for a transferable credential that meets all of the following requirements: (i) The contract is offered separately from any contract for employment. (ii) The contract does not require obtaining the transferable credential as a condition of employment. (iii) The contract specifies the repayment amount before the worker agrees to the contract, and the repayment amount does not exceed the cost to the employer of the transferable credential received by the worker. (iv) The contract provides for a prorated repayment amount during any required employment period that is proportional to the total repayment amount and the length of the required employment period and does not require an accelerated payment schedule if the worker separates from the employment. (v) The contract does not require repayment to the employer by the worker if the worker is terminated, except if the worker is terminated for misconduct. (C) A contract related to enrollment in an apprenticeship program approved by the Division of Apprenticeship Standards. (D) A contract for the receipt of a discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance, provided that all of the following conditions are met: (i) The terms of any repayment obligation are set forth in a separate agreement from the primary employment contract. (ii) The employee is notified that they have the right to consult an attorney regarding the agreement and provided with a reasonable time period of not less than five business days to obtain advice of counsel prior to executing the agreement. (iii) Any repayment obligation for early separation from employment is not subject to interest accrual and is prorated based on the remaining term of any retention period, which shall not exceed two years from the receipt of payment. (iv) The worker has an option to defer receipt of the payment to the end of a fully served retention period without any repayment obligation. (v) Separation from employment prior to the retention period was at the sole election of the employee, or at the election of the employer for misconduct. (E) A contract related to the lease, financing, or purchase of residential property, including, but not limited to, a contract pursuant to the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000) of the Financial Code).

(c) A contract that is unlawful under subdivision (b) is a contract restraining a person from engaging in a lawful profession, trade, or business, and is void under Section 16600 only if the contract was entered into on or after January 1, 2026.

The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship *389 on. the employee, and (3) is not injurious to the public (see, e.g., Technical Aid Corp. v Allen, 134 NH 1, 8, 591 A2d 262, 265-266 ; Blake, op. cit., at 648-649; Restatement [Second] of Contracts § 188). A violation of any prong renders the covenant invalid. New York has adopted this prevailing standard of reasonableness in determining the validity of employee agreements not to compete. “In this context a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee” (Reed, Roberts Assocs. v Strauman, 40 NY2d 303, 307 ). In general, we have strictly applied the rule to limit enforcement of broad restraints on competition.

Thus, in Reed, Roberts Assocs. (supra), we limited the cognizable employer interests under the first prong of the common-law rule to the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary ( 40 NY2d, at 308 ). With agreements not to compete between professionals, however, we have given greater weight to the interests of the employer in restricting competition within a confined geographical area.

Nonetheless, Gelder Medical Group and Karpinski do not dictate the result here. As we noted in Karpinski , the application of the test of reasonableness of employee restrictive covenants focuses on the particular facts and circumstances giving context to the agreement ( 28 NY2d, at 49 ; see also, Reed, Roberts Assocs. v Strauman, supra, 40 NY2d, at 307 ). This Court’s rationale for giving wider latitude to covenants between members of a learned profession because their services are unique or extraordinary (Reed, Roberts Assocs. v Strauman, supra) does not realistically apply to the actual context of the anti-competitive agreement here.

Legal scholars and courts have more circumspectly identified the employer’s legitimate interest in employee anti-competitive agreements than that of preservation of the employer’s entire client base where, as here, there is no evidence that the employee obtained a competitive advantage by using confidential information.

It follows from the foregoing that EDO’s legitimate interest here is protection against defendant’s competitive use of client relationships which EDO enabled him to acquire through his performance of accounting services for the firm’s clientele during the course of his employment (Blake, op. cit., at 647-661). Extending the anti-competitive covenant to EDO’s clients with whom a relationship with defendant did not develop through assignments to perform direct, substantive accounting services would, therefore, violate the first prong of the common-law rule: it would constitute a restraint “greater than is needed to protect” these legitimate interests (Restatement [Second] of Contracts § 188 [1] [a]).

A legitimate consideration against the exercise of this power is the fear that employers will use their superior bargaining position to impose unreasonable anti-competitive restrictions, uninhibited by the risk that a court will void the entire agreement, leaving the employee free of any restraint (id.). The prevailing, modern view rejects a per se rule that invalidates entirely any overbroad employee agreement not to compete. Instead, when, as here, the unenforceable portion is not an essential part of the agreed exchange, a court should conduct a case specific analysis, focusing on the conduct of the employer in imposing the terms of the agreement (see, Restatement [Second] of Contracts § 184). Under this approach, if the employer demonstrates an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct, but has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing, partial enforcement may be justified (see, Blake, op. cit, at 633; Restatement [Second] of Contracts § 184 [1], [2]). We essentially adopted this more flexible position in Karpinski (supra).

To the extent, then, that paragraph sixth of the Manager’s Agreement requires defendant to compensate EDO for lost patronage of clients with whom he never acquired a relationship through the direct provision of substantive accounting services during his employment, the covenant is invalid and unenforceable. By a parity of reasoning, it would be unreasonable to extend the covenant to personal clients of defendant who came to the firm solely to avail themselves of his services and only as a result of his own independent recruitment efforts, which BDO neither subsidized nor otherwise financially supported as part of a program of client development.

A different result might obtain had BDO submitted any proof that defendant had used confidential firm information to attract BDO clients with whom he had not had a relationship while employed there.

The Appellate Division’s fear that partial enforcement will require rewriting the parties’ agreement is unfounded. No additional substantive terms are required. The time and geographical limitations on the covenant remain intact. The only change is to narrow the class of BDO clients to which the covenant applies (cf.,Karpinski v Ingrasci, supra [narrowing the scope of the prohibitive post-employment activity]). Moreover, to reject partial enforcement based solely on the extent of necessary revision of the contract resembles the now-discredited doctrine that invalidation of an entire restrictive covenant is required unless the invalid portion was so divisible that it could be mechanically severed, as with a “judicial blue pencil” (see, Blake, op. cit., at 681). The Restatement (Second) of Contracts rejected that rigid requirement of strict divisibility before a covenant could be partially enforced (see, Reporter’s Note, Restatement [Second] of Contracts § 184, at 32). Thus, we conclude that severance is appropriate, rendering the restrictive covenant partially enforceable.

Here, the undisputed facts and circumstances militate in favor of partial enforcement. The covenant was not imposed as a condition of defendant’s initial employment, or even his continued employment, but in connection with promotion to a position of responsibility and trust just one step below admittance to the partnership. There is no evidence of coercion or that the Manager’s Agreement was part of some general plan to forestall competition.

Except for the overbreadth in the foregoing two respects, the restrictions in paragraph sixth do not violate the tripartite common-law test for reasonableness. The restraint on serving EDO clients is limited to 18 months, and to clients of BDO’s Buffalo office. The time constraint appears to represent a reasonably brief interlude to enable the firm to replace the client relationship and goodwill defendant was permitted to acquire with some of its clients.

§ 466. Unreasonable restrictions. 1. It shall be unlawful for a franchisor directly or indirectly to impose unreasonable restrictions on the franchised motor vehicle dealer relative to transfer, sale, right to renew or termination of a franchise, discipline, noncompetition covenants, site-control (whether by sublease, collateral pledge of lease or otherwise), right of first refusal to purchase, option to purchase, compliance with subjective standards and assertion of legal or equitable rights with respect to its franchise or dealership.

The central issue before us is whether the “reimbursement clause” in an agreement between the parties, requiring defendant to compensate BDO for serving any client of the firm’s Buffalo office within 18 months after the termination of his employment, is an invalid and unenforceable restrictive covenant. The courts below so held.

Concededly, the Manager’s Agreement defendant signed does not prevent him from competing for new clients, nor does it expressly bar him from serving BDO clients.

Nonetheless, it is not seriously disputed that the agreement, in its purpose and effect, is a form of ancillary employee anti-competitive agreement that will be carefully scrutinized by the courts (see, Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499 ).

Close analysis of paragraph sixth of the agreement under the first prong of the common-law rule, to identify the legitimate interest of BDO and determine whether the covenant is no more restrictive than is necessary to protect that interest, leads us to conclude that the covenant as written is overbroad in some respects.

Defendant is free to compete immediately for new business in any market and, if the over-broad provisions of the covenant are struck, to retain his personal clients and those clients of EDO’s that he had not served to any significant extent while employed at the firm. He has averred that BDO’s list of lost accounts contains a number of clients in both categories. Thus, there is scant evidence suggesting that the covenant, if cured of overbreadth, would work an undue hardship on defendant. Moreover, given the likely broad array of accounting services available in the greater Buffalo area, and the limited remaining class of BDO clientele affected by the covenant, it cannot be said that the restraint, as narrowed, would seriously impinge on the availability of accounting services in the Buffalo area from which the public may draw, or cause any significant dislocation in the market or create a monopoly in accounting services in that locale. These factors militate against *394 a conclusion that a reformed paragraph sixth would violate the third prong of the common-law test, injury to the public interest (see, Gelder Med. Group v Webber, supra, 41 NY2d, at 685; Blake, op. cit., at 686-687; Restatement [Second] of Contracts § 188, comment g).

We conclude that the Appellate Division erred in holding that the entire covenant must be invalidated, and in declining partially to enforce the covenant to the extent necessary to protect BDO’s legitimate interest.

Moreover, no proof was submitted that EDO imposed the covenant in bad faith, knowing full well that it was overbroad. Indeed, as already discussed, the existence of our “learned profession” precedents, and decisions in other States upholding the full terms of this type of agreement, support the contrary conclusion. Therefore, partial enforcement of paragraph sixth is warranted.

As to those clients, the measure of plaintiffs damages will depend in the first instance on the validity of the clause in *396 paragraph sixth of the Manager’s Agreement requiring defendant to compensate BDO “for the loss and damages suffered” in an amount equal to 1½ times the fees charged each lost client over the last full year the client was served by the firm. This provision essentially represents a liquidated damages clause, as BDO conceded at nisi prius. Liquidated damages provisions, under our precedents, are valid if the “damages flowing from a breach are difficult to ascertain [and under] a provision fixing the damages in advance * * * the amount is a reasonable measure of the anticipated probable harm” (City of Rye v Public Serv. Mut. Ins. Co., 34 NY2d 470, 473 ). On the other hand, if “the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced” (Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 425 ). The damages here are sufficiently difficult to ascertain to satisfy the first requirement of a valid liquidated damages provision.

In our view, however, the averment regarding the basis of the liquidated damages formula by no means conclusively *397 demonstrates the absence of gross disproportionality. Indeed, the nonspecific averment in the affidavit, quoted above, which EDO relies upon, is the only record evidence supporting the reasonableness of the liquidated damages clause.

The sparse proof on this issue here persuades us that we, similarly, should remit for further development of the record on the liquidated damages formula.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be modified, without costs, by denying defendant’s motion for summary judgment, granting plaintiffs motion for partial summary judgment declaring the restrictive covenant enforceable as here provided, and remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed.