How NY‑Based Investment Managers Can Craft Enforceable Non‑Competes That Do Not Provide for Post‑Employment Compensation

Courts in New York have long required that non-competes and other post-employment restrictive covenants be supported by adequate consideration in order to be enforceable. While this general rule leads many New York investment managers and their legal counsel to assume that employers must continue to pay former employees during a non-compete period, this assumption may be incorrect, as long as the restrictive covenant in question is otherwise reasonable and the employee in question was well compensated during his or her tenure. In a guest article, Pryor Cashman partner Jonathan Shepard and counsel Eric Dowell explain the circumstances under which New York courts will find consideration to be adequate despite the absence of post-employment pay and provide practical advice on how to draft non-compete language that is likely to be held enforceable even where there is no provision for that pay during the subject non-compete period. See our two-part series on internal compensation arrangements for investment professionals: “Carried Interest and Deferred Compensation” (Mar. 15, 2018); and “Hedge Fund Compensation and Non-Competes” (Mar. 22, 2018). For additional insight from Shepard and Dowell, see “How Fund Managers Can Use Non‑Reliance Clauses to Protect Themselves From Investor Claims of Misrepresentation” (May 23, 2019).

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