PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: James Underwood, Associate, Calderwood & Harkness LLP
FROM: Devon Archer, Associate, Calderwood & Harkness LLP
DATE: June 6, 2024
RE: Enforceability of Non-Compete Agreements Under New York Law — Current Status and Pending Legislation
MATTER: Northgate Telecommunications PLC — CEO Employment Negotiation (1022-00004)
CLIENT: Northgate Telecommunications PLC
I. Purpose and Scope of Memorandum
This memorandum has been prepared in connection with the ongoing negotiation of a proposed executive employment agreement between Northgate Telecommunications US, Inc. ("NTP US"), the wholly-owned Delaware subsidiary of Northgate Telecommunications PLC ("NTP" or "Northgate"), and Marcus Elliot Harding ("Harding"), the candidate for the position of Chief Executive Officer of NTP and its global group of companies. The memorandum is intended to provide the engagement team with a comprehensive analysis of the enforceability framework governing restrictive covenant obligations — and specifically non-competition agreements — under current New York law, as well as an assessment of pending legislative developments that may materially affect the enforceability landscape during the anticipated term of the proposed agreement.
The proposed employment agreement will be governed by New York law. The governing-law selection reflects a clear New York nexus: NTP US maintains its United States headquarters at 600 Lexington Avenue, 38th Floor, New York, New York 10022, and Harding's primary personal residence is located at 14 Gramercy Park South, Apt. 12A, New York, New York 10003. Harding is expected to be based primarily in New York, with an anticipated allocation of approximately eighty percent (80%) of his working time in New York and twenty percent (20%) at NTP's global headquarters in London, United Kingdom. Both the employer's principal US office and the executive's domicile are situated within the State of New York, establishing a substantial and genuine connection to the forum.
As of the date of this memorandum, the parties' respective positions on the non-compete provision diverge significantly. Northgate proposes a twenty-four (24) month post-termination non-competition period with a worldwide geographic scope, restricting Harding from employment with, or the provision of services to, any company that derives more than fifteen percent (15%) of its revenue from telecommunications services, telecommunications infrastructure, or enterprise SaaS platforms serving telecom operators. Harding, through his personal counsel, Victoria Hargrove of Hargrove & Liddell LLP, is seeking a twelve (12) month non-competition period limited to North America and Western Europe, with the scope of restricted activity defined by reference to a schedule of eight (8) named direct competitors of Northgate. The gap between these positions — in duration, geography, and scope of restricted activity — is material and represents one of the key open issues in the employment negotiation.
As a reference point for the negotiations, Harding maintains an existing twelve (12) month non-competition agreement with his current employer, Marlowe Asset Management Digital Holdings, Inc. ("Marlowe Asset Management" or "VDHI"), a Delaware corporation listed on the New York Stock Exchange (NYSE: VDHI), where he currently serves as Chief Operating Officer. Harding's existing Marlowe Asset Management non-compete is limited to the United States in geographic scope. This existing restriction will serve as both a practical and rhetorical benchmark in the parties' negotiations: Hargrove & Liddell will likely argue that terms sufficient for Marlowe Asset Management — a significantly larger company by market capitalization — should be at least equally sufficient for Northgate.
This memorandum analyzes the following: (i) the general enforceability framework for restrictive covenant obligations under current New York law, including the well-established reasonableness test applied by New York courts; (ii) the specific factors courts consider in evaluating the enforceability of non-competition agreements, including duration, geographic scope, and scope of restricted activity; (iii) the blue-pencil doctrine and its implications for drafting strategy; (iv) the interaction of garden leave provisions with non-compete enforceability; (v) consideration requirements under New York law; (vi) pending New York State legislation that could fundamentally alter the enforceability of non-compete agreements; and (vii) the application of these principles to the specific dynamics of the Northgate-Harding negotiation, including a comparative analysis of the parties' respective positions and recommendations for a defensible, enforceable structure.
A companion memorandum on restrictive covenant drafting considerations specific to C-suite telecommunications executives — including model clause language, industry-specific precedent, and a survey of restrictive covenant terms in recent CEO employment agreements filed as exhibits to public company 8-K filings in the telecom and enterprise technology sectors — is being prepared separately by James Underwood and will be circulated to the engagement team upon completion.
II. Executive Summary
Based on the analysis set forth in detail below, the following key conclusions and observations inform our recommendations for the structuring of the restrictive covenant provisions in the proposed Harding employment agreement:
First, New York courts apply a well-established reasonableness test to evaluate the enforceability of non-compete agreements, examining: (a) whether the restriction is necessary to protect a legitimate business interest of the employer; (b) whether the restriction imposes an undue hardship on the employee; (c) whether the restriction is injurious to the public interest; and (d) whether the restriction is reasonable in its duration, geographic scope, and scope of restricted activity. The burden of demonstrating reasonableness rests squarely on the employer. Restrictive covenants are disfavored under New York law as restraints on trade and are construed narrowly.
Second, for C-suite executives with access to highly sensitive strategic, financial, and competitive information — particularly a Chief Executive Officer who sits at the apex of the corporate hierarchy and has unfettered access to all material non-public information — New York courts have generally been more willing to uphold broader restrictive covenants than for lower-level or mid-level employees. The unique nature of the CEO's role, including the executive's influence over corporate strategy, investor relationships, organizational culture, and competitive positioning, supports a more expansive restriction. Nevertheless, reasonableness limits continue to apply, and courts do not afford employers unlimited latitude merely because the departing executive held a senior title.
Third, a twenty-four (24) month worldwide non-compete — as Northgate currently proposes — is at the outer edge of enforceability under current New York law. While not per se unenforceable, such a restriction faces meaningful litigation risk, particularly with respect to geographic scope. Durations of twelve (12) to eighteen (18) months, combined with a geographic scope aligned with the executive's actual operational footprint, are more commonly upheld by New York courts and represent a more defensible position.
Fourth, New York courts retain equitable authority to modify — or "blue-pencil" — overbroad restrictive covenants to render them reasonable and enforceable, rather than voiding them entirely. While this provides a backstop for Northgate in the event that a court concludes the initial terms are overbroad, reliance on blue-penciling as a primary litigation or drafting strategy carries significant risk: it requires affirmative enforcement proceedings, subjects the scope of the restriction to judicial discretion, and may result in a reformed restriction that is narrower than what Northgate would have obtained through careful initial drafting.
Fifth, pending New York State legislation, if enacted, could fundamentally alter the enforceability landscape by banning or severely restricting non-compete agreements. The most significant legislative development was the governor's veto in December 2023 of a bill that would have broadly prohibited non-compete agreements for all workers, including senior executives. Revised bills have been introduced in the 2024 legislative session. While the governor's veto and the ongoing character of the legislative process suggest that a comprehensive ban is not imminent, the directional trend — consistent with developments at the federal level (the FTC's proposed rule) and in other states (California, Colorado, Minnesota, and others) — represents a policy risk that should be reflected in the agreement's drafting through appropriate savings clauses and robust fallback protections.
Sixth, based on the foregoing analysis, our preliminary recommendation is that a non-compete of eighteen (18) months, scoped to North America and Western Europe, with a tailored activity definition employing a hybrid scheduled-competitor and refined revenue-based catch-all approach, paired with a six (6) month paid garden leave provision running concurrently with the first six (6) months of the non-compete period, would represent a defensible, enforceable structure under current New York law while providing Northgate with meaningful competitive protection during the critical post-separation period. This structure would yield an effective twelve (12) month post-garden-leave non-competition restriction — closely aligned with market practice for CEO-level departures in the telecommunications industry and well within the range routinely upheld by New York courts.
III. Legal Framework: Enforceability of Non-Compete Agreements Under Current New York Law
A. General Principle: Restrictive Covenants as Disfavored Restraints on Trade
New York law has long recognized that restrictive covenant obligations — including agreements not to compete, agreements not to solicit the employer's employees or customers, and agreements restricting the disclosure or use of confidential information — constitute restraints on trade and are therefore disfavored. See, e.g., Vane Kaplan CPAs LLP Seidman v. Hirshberg, 93 N.Y.2d 382, 388 (1999) ("Restrictive covenants are common, particularly in connection with the sale of a business or in an employment arrangement, but are subject to specific enforcement limitations."); Predding, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 307 (1976) ("Undeniably, the objective of restrictive covenants in employment contracts is to limit competition and, thus, they are subject to specific enforcement limitations."). The public policy rationale underlying this disfavor is twofold: (i) New York courts seek to protect the freedom of individuals to earn a livelihood through the exercise of their skills and experience, and (ii) the courts are reluctant to sanction agreements that impede competition and deprive the public of the services of productive members of the workforce.
Because restrictive covenants are disfavored, New York courts construe them narrowly and will enforce them only to the extent they satisfy the requirements of reasonableness. An employer seeking to enforce a restrictive covenant bears the burden of establishing that the restriction is reasonable in all respects. See Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 388–89. This burden extends to demonstrating both the existence of a legitimate protectable interest and the reasonableness of the covenant's specific terms as applied to the individual employee's circumstances.
It is important to note that while restrictive covenants are disfavored, they are not per se unenforceable under New York law. New York courts routinely uphold and enforce restrictive covenants that are reasonably tailored to protect legitimate employer interests. The question in every case is whether the specific restriction at issue — considered in its full context, including the nature of the employee's role, the competitive landscape, and the scope of the employee's exposure to confidential information and customer relationships — satisfies the applicable reasonableness standard.
For purposes of the proposed Harding employment agreement, we note that the agreement will specify New York as the governing law. New York courts generally respect contractual choice-of-law provisions in the employment context where the parties have a substantial connection to the State of New York. See, e.g., Ministers & Missionaries Benefit Bd. v. Snow, 26 N.Y.3d 466, 472 (2015) (discussing choice-of-law analysis in the context of restrictive covenants). Given that both the employer's principal US office and the executive's personal residence are in New York, and Harding will be based primarily in New York, a New York choice-of-law provision should be upheld without material challenge. Accordingly, this memorandum analyzes the proposed non-compete exclusively under New York law.
B. The Three-Prong Reasonableness Test
New York courts evaluate the enforceability of non-competition agreements through a well-established reasonableness framework. While various courts have articulated the test with slightly different formulations, the core analytical structure — derived from the Court of Appeals' decision in Vane Kaplan CPAs LLP Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), and related precedent — requires the employer to demonstrate that the restriction: (1) is necessary to protect a legitimate business interest; (2) does not impose an undue hardship on the employee; and (3) does not injure the public interest. Additionally, courts assess whether the restriction is reasonable in its specific parameters — duration, geographic scope, and scope of restricted activity. Each prong is addressed below with reference to the facts of the proposed Harding engagement.
1. Legitimate Business Interest. The threshold requirement for enforcing a non-compete under New York law is the existence of a legitimate business interest that the restriction is designed to protect. New York courts have recognized several categories of legitimate protectable interests, the most significant of which are discussed below.
Protection of Trade Secrets and Confidential Information. The protection of trade secrets and confidential business information is the most widely recognized basis for enforcing a non-compete. See Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 389; Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 407 (1993). An employer need not establish that the information at issue rises to the level of a formal "trade secret" under the Defend Trade Secrets Act or New York common law; rather, it is sufficient to show that the employee had access to confidential, proprietary, or competitively sensitive information whose disclosure to a competitor would cause meaningful harm to the employer's competitive position.
This factor is highly relevant in the case of Harding. As the incoming Group CEO of Northgate Telecommunications PLC — a dual-listed public company traded on the London Stock Exchange (ticker: NTP) and the New York Stock Exchange (ADR ticker: NTPC), with approximately £4.26 billion in global revenue and approximately 22,500 employees worldwide — Harding would have access to the most sensitive categories of corporate information across the entire NTP enterprise. This includes, without limitation: (i) strategic plans and corporate development initiatives, including potential M&A transactions, divestitures, and strategic partnerships; (ii) the company's active M&A pipeline, which we understand includes at least three potential acquisition targets under active evaluation; (iii) NTP's SaaS product roadmap and proprietary technology development plans; (iv) detailed financial projections, operating budgets, and long-range financial plans; (v) pricing strategies and competitive intelligence; (vi) material customer contracts, including terms and conditions with NTP's largest enterprise customers; (vii) regulatory and government affairs strategies across multiple jurisdictions; (viii) proprietary technology and intellectual property, including patents, trade secrets, and know-how relating to NTP's network infrastructure and SaaS platforms; and (ix) information relating to NTP's workforce, including compensation structures, succession planning, and organizational development initiatives. The breadth and sensitivity of the information to which a Group CEO has access is, by definition, the most comprehensive of any executive within the organization. This factor weighs heavily in favor of enforceability.
Protection of Customer Relationships and Goodwill. New York courts also recognize the protection of customer relationships and the goodwill associated with those relationships as a legitimate basis for enforcing a non-compete. See Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 392. This interest is particularly relevant where the departing executive has developed personal relationships with the employer's key customers and strategic partners and could leverage those relationships for the benefit of a competitor.
A CEO is the public face of the company. As Group CEO, Harding would be NTP's primary representative in interactions with major customers, strategic partners, regulators, government officials, industry organizations, and the investment community. Of particular relevance, Harding would maintain direct relationships with NTP's largest institutional shareholders, including Caledonian Asset Management (which holds approximately 8.3% of NTP's outstanding shares), Pemberton Capital Group (approximately 6.7%), Thornbury Investment Trust (approximately 5.1%), Regis Global Equity Fund (approximately 4.4%), and Atlas Pension Fund (approximately 3.2%). The CEO's relationships extend beyond individual customer contacts to encompass the broader goodwill and reputational capital that the executive develops as the embodiment of the company's brand, values, and strategic direction. A departure to a direct competitor could result in the redirection of significant goodwill and relational capital, particularly in the concentrated institutional investor community and among NTP's largest enterprise customers. This factor supports the existence of a legitimate protectable interest.
Protection of Unique or Extraordinary Services. New York courts have recognized that an employer may have a legitimate interest in restricting the post-employment competitive activities of an executive whose services are "unique or extraordinary." See Am. Broad. Cos. v. Wolf, 52 N.Y.2d 394, 402 (1981); Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir. 1999) (applying New York law). This doctrine acknowledges that certain executives — by virtue of their distinctive combination of skills, experience, relationships, and institutional knowledge — have a qualitative impact on the employer's business that transcends the executive's individual job performance. A Group CEO who drives corporate strategy, cultivates investor confidence, and shapes organizational culture provides services that are, by their nature, unique and difficult to replicate. Harding's background — including a twenty-eight (28) year career in telecommunications and technology, prior service as Executive Vice President of Global Operations at Meridian Wireless Corp. (a Fortune 500 company), and his current role as Chief Operating Officer of Marlowe Asset Management Digital Holdings — underscores the depth of his industry experience and the specialized nature of the services he would provide to Northgate.
Prevention of Unfair Competition. Finally, New York courts recognize a legitimate interest in preventing "unfair competition" — that is, preventing a former executive from exploiting knowledge of the employer's competitive strategy, weaknesses, and planned initiatives for the benefit of a direct competitor. See Scott, Stackrow & Co., C.P.A.'s, P.C. v. Skavina, 9 A.D.3d 805, 806 (3d Dep't 2004). Where the executive has been privy to the employer's most sensitive competitive intelligence — as would be the case for any Group CEO — the risk of unfair competition is at its zenith.
Assessment. Applying the foregoing factors to the proposed Harding engagement, we conclude that Northgate would satisfy the legitimate-business-interest prong of the enforceability analysis comfortably. A Group CEO of a dual-listed, £4.26 billion revenue global telecommunications and SaaS enterprise — with access to the full spectrum of confidential and strategic information, direct relationships with major customers, investors, and partners, and oversight of corporate strategy across all business units and geographies — occupies the prototypical position that New York courts have identified as warranting restrictive covenant protection.
2. Undue Hardship on Employee. The second prong of the reasonableness analysis requires a court to consider whether the non-compete would impose an undue hardship on the employee — specifically, whether the restriction would effectively prevent the executive from earning a livelihood. See Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 391–92; Predding, Roberts, 40 N.Y.2d at 307. This prong reflects the fundamental equitable concern that a restrictive covenant should not operate as a de facto bar on the employee's ability to work.
New York courts have consistently recognized that the hardship inquiry is context-specific and must be evaluated in light of the executive's individual circumstances, including the executive's skill set, professional versatility, financial resources, and the practical availability of alternative employment opportunities that fall outside the scope of the restriction. For C-suite executives with diverse skill sets, broad industry experience, and substantial accumulated wealth, courts are generally less sympathetic to hardship claims than for lower-level employees whose professional options may be genuinely constrained by a non-compete. See, e.g., Veritas Capital Mgmt., L.L.C. v. Campbell, 82 A.D.3d 529, 530 (1st Dep't 2011) (upholding restrictive covenant against senior financial executive); Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 174 (S.D.N.Y. 2006) (applying New York law and considering executive's financial resources in hardship analysis).
Harding's professional and financial profile is relevant to this analysis. His career spans twenty-eight (28) years in telecommunications and technology, with progressively senior executive roles. His current total target compensation at Marlowe Asset Management Digital Holdings is approximately $11,125,000, and his estimated unvested equity holdings at Marlowe Asset Management are approximately $23,400,000. Under the proposed NTP employment agreement, Harding would receive a sign-on cash bonus of $5,000,000, a sign-on equity grant of $18,400,000, an annual base salary of $1,750,000, a target annual bonus of $3,062,500 (175% of base), and a target annual long-term incentive award of $9,000,000, yielding total target annual compensation of approximately $13,812,500. The severance provisions include a non-change-in-control severance payment of $9,625,000 at a 2x multiplier. These figures indicate substantial financial security and a capacity to sustain a period of non-employment without material hardship.
However, the hardship analysis is not solely financial. A 24-month worldwide restriction on employment in telecommunications services, telecommunications infrastructure, or enterprise SaaS could be argued to effectively exclude Harding from his entire professional domain for two full years. Given that Harding has spent his entire career in the telecommunications and technology sector, there is a plausible argument that a restriction of such breadth would preclude virtually any executive-level employment for which he is qualified during the restricted period. This is the strongest hardship argument that the employee side could mount, and it should be taken seriously in calibrating the scope and duration of the restriction.
Garden leave provisions can meaningfully mitigate hardship concerns by providing continued compensation during the restrictive period. Northgate's proposal includes a six (6) month garden leave period at base salary ($1,750,000 annualized, yielding approximately $875,000 for the six-month period). While this falls short of Harding's demand for twelve (12) months of garden leave at full compensation (base plus pro-rata bonus), even a six-month garden leave demonstrates that the employer is not imposing a restriction without corresponding financial support. Courts have cited garden leave provisions favorably as evidence that the employer has balanced its protective interests against the executive's need for continued economic support. See, e.g., Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22, 37 (S.D.N.Y. 2010).
Assessment. While the hardship prong is unlikely to be dispositive against enforceability given Harding's financial profile, the breadth of Northgate's proposed 24-month worldwide restriction creates a colorable hardship argument that could be exploited by counterparty counsel. Narrowing the restriction to a more targeted geographic scope and a more precisely defined set of restricted activities — and pairing it with a meaningful garden leave provision — would substantially reduce the risk that a court would find undue hardship.
3. Injury to Public Interest. The third prong of the reasonableness test considers whether enforcement of the non-compete would be injurious to the public interest. This prong is rarely dispositive in executive-level non-compete cases; it most commonly arises in the context of physicians, attorneys, or other professionals whose services are essential to public welfare. See, e.g., Karpinski v. Ingrasci, 28 N.Y.2d 45, 49 (1971) (discussing public interest concerns in the context of an oral surgeon's non-compete).
No apparent public interest concern would arise from enforcing a non-compete against a CEO transitioning between private-sector employers in the telecommunications industry. The public does not have a particularized interest in Harding's ability to serve as CEO of a specific competitor of Northgate. Accordingly, this prong should not present an obstacle to enforceability.
C. Specific Reasonableness Factors
Beyond the three-prong test, New York courts engage in a granular analysis of the specific parameters of the restrictive covenant to determine whether they are reasonable. The principal parameters are duration, geographic scope, and scope of restricted activity.
1. Duration. The duration of a post-employment non-compete is one of the most closely scrutinized factors in the enforceability analysis. New York courts have upheld non-competition periods ranging from six (6) months to two (2) years for senior executives, with the most commonly upheld durations falling in the twelve (12) to eighteen (18) month range. See, e.g., Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 394 (upholding a modified three-year restriction); Veritas Capital, 82 A.D.3d at 530 (upholding an eighteen-month restriction for a senior investment professional); Halcyon Risk Advisors, Inc. v. Johnson, 25 N.Y.3d 364, 370–71 (2015) (analyzing duration in the context of the reasonableness inquiry). Durations significantly exceeding two (2) years are very difficult to sustain and are rarely upheld absent extraordinary circumstances.
The relevance of this case law to the Northgate-Harding negotiation is as follows:
• 24 months (Northgate's proposal): A twenty-four month restriction sits at the outer edge of what New York courts have been willing to uphold, even for the most senior executives. While there are precedents supporting restrictions of this duration, they typically involve circumstances where the scope of restricted activity and geographic reach are narrowly defined, thereby compensating for the extended duration. A twenty-four month restriction combined with a worldwide scope and broadly defined activity restrictions — as in Northgate's current proposal — compounds the enforceability risk. Courts may view the cumulative effect of these broad parameters as excessive.
• 12 months (Harding's demand): A twelve-month restriction is well within the range that New York courts routinely uphold for senior executives. At this duration, courts are unlikely to find the temporal restriction unreasonable, even if other parameters (geographic scope, activity scope) are defined somewhat broadly. However, from Northgate's perspective, twelve months may be insufficient to protect against the competitive risk posed by a departing CEO, particularly given the eighteen- to twenty-four-month cycle for strategic planning, M&A execution, and product launches in the telecommunications industry.
• 18 months (recommended fallback): An eighteen-month restriction represents a reasonable middle ground that has been frequently upheld by New York courts for senior executives. It provides Northgate with a meaningful protection period that extends beyond the initial period of acute competitive risk (when the departing CEO's knowledge is freshest and most directly actionable) while remaining comfortably within the range of reasonableness. We recommend this duration as the target outcome.
An additional consideration in the duration analysis is Harding's existing non-compete with Marlowe Asset Management Digital Holdings. That restriction is twelve (12) months in duration. Counterparty counsel at Hargrove & Liddell will likely argue — with some force — that if Marlowe Asset Management, a company with an approximate market capitalization of $34 billion (roughly three times the market capitalization of Northgate, at approximately $11.1 billion), considers twelve months sufficient to protect its interests following a COO departure, Northgate cannot reasonably insist on twenty-four months for a CEO departure. This argument has rhetorical appeal, though it can be distinguished on the grounds that the CEO role involves a higher level of strategic exposure than the COO role and that NTP, as a smaller company, may be proportionally more vulnerable to competitive harm from a CEO departure.
2. Geographic Scope. The geographic scope of a non-compete must be reasonably related to the area in which the employer conducts business and in which the departing executive could cause competitive harm. See Predding, Roberts, 40 N.Y.2d at 307; Scott, Stackrow, 9 A.D.3d at 806.
Worldwide Restrictions. Worldwide geographic restrictions are enforceable under New York law in limited circumstances, typically where the employer conducts business on a genuinely global scale and the departing executive had worldwide responsibilities. See, e.g., Estee Lauder, 430 F. Supp. 2d at 174–75 (upholding a worldwide restriction for a senior executive of a global cosmetics company). Northgate's status as a UK-headquartered company with global operations, cross-listed on the London Stock Exchange and the New York Stock Exchange, with approximately 22,500 employees operating across multiple continents, provides a facially plausible basis for arguing that a worldwide scope is warranted. As Group CEO, Harding would bear ultimate responsibility for all of NTP's global operations, lending support to the argument that his competitive exposure is global in nature.
However, New York courts scrutinize whether a worldwide scope is truly necessary to protect the employer's interests or is merely a matter of convenience and overreach. A court will consider where the executive's primary operational focus lies, where the employer's key competitive exposure is concentrated, and whether the restriction could be narrowed without materially undermining the employer's legitimate protectable interests. In this case, while Harding would nominally oversee all global operations, his proposed time allocation — approximately eighty percent (80%) in New York and twenty percent (20%) in London — concentrates his operational presence in North America and Western Europe. NTP's most significant competitive exposure in the markets where Harding would be most actively engaged is likely concentrated in these regions as well. Extending the restriction to cover Asia-Pacific, Latin America, Africa, and other regions where Harding's personal operational involvement may be attenuated introduces enforceability risk without commensurate protective benefit.
Harding's Counter-Demand. Harding's proposed geographic scope — North America and Western Europe — aligns with the regions where he would be primarily operating and where NTP's key competitive relationships and strategic plans are concentrated. This scope is both more defensible before a New York court and likely sufficient to protect Northgate's core competitive interests.
Marlowe Asset Management Benchmark. Harding's existing non-compete with Marlowe Asset Management Digital Holdings is limited to the United States. Counterparty counsel will certainly cite this as precedent, arguing that if a US geographic scope sufficed for Marlowe Asset Management — a larger company — Northgate should accept no broader a scope. While distinguishable on the grounds that NTP has a more pronounced international footprint than a US-headquartered company (NTP's global headquarters is in London, and a substantial portion of its revenue derives from non-US markets), the comparison nonetheless creates negotiation leverage for the candidate.
Recommendation. A geographic scope limited to North America and Western Europe is more defensible under New York law and is likely sufficient to protect Northgate's core competitive interests. We recommend this scope as the target outcome, with worldwide scope reserved only as an opening negotiating position.
3. Scope of Restricted Activity. The scope of restricted activity — that is, the definition of what the departing executive is prohibited from doing and for whom — is frequently the most contentious and closely scrutinized element of a non-compete. An overly broad activity scope can render an otherwise reasonable restriction unenforceable.
Northgate's Proposal. Northgate proposes to restrict Harding from employment by, or the provision of services to, any company that derives more than fifteen percent (15%) of its revenue from telecommunications services, telecommunications infrastructure, or enterprise SaaS platforms serving telecom operators. This definition employs a revenue-based threshold test, which has the advantage of providing an objective, quantifiable standard. Courts generally view revenue-based tests more favorably than subjective or undefined "competitor" definitions, because they allow both parties — and any reviewing court — to assess applicability based on publicly available financial data.
However, the breadth of the category "enterprise SaaS platforms serving telecom operators" is a concern. The enterprise SaaS industry is vast and encompasses a wide range of software companies, many of which serve telecom operators as only a subset of their customer base. Depending on how this category is interpreted, the restriction could capture a substantial number of major technology companies — including diversified enterprise software companies, cloud infrastructure providers, and data analytics firms — whose primary business is not telecommunications but who count telecom operators among their customers. A court could find that a definition capturing such a broad swath of the technology industry is not reasonably necessary to protect Northgate's competitive interests and imposes an unnecessary burden on Harding's ability to pursue alternative employment.
Harding's Counter-Demand. Harding proposes limiting the restriction to "direct competitors" identified on a schedule of eight (8) named companies. Scheduled-competitor approaches have significant advantages: they provide certainty to both parties, eliminate litigation over whether a particular employer falls within the scope of the restriction, and are generally enforceable because the restricted scope is clear and finite. However, scheduled-competitor lists suffer from a well-recognized limitation — they are inherently backward-looking and static. They cannot capture new market entrants, companies that expand into telecommunications after the execution of the agreement, or subsidiaries and affiliates of listed companies that may not be identified on the schedule. A scheduled-competitor approach, standing alone, could be materially under-inclusive and leave Northgate without protection against competition from unlisted competitors.
Hybrid Approach. A hybrid approach — combining a schedule of named direct competitors with a revenue-based catch-all provision — may bridge the gap between the parties' positions. Under this approach, the schedule would identify the primary direct competitors as of the date of the agreement, providing certainty and clarity. The revenue-based catch-all would extend the restriction to additional companies meeting an objective threshold, thereby capturing new entrants and unlisted competitors. To address the concern about overbreadth, we recommend refining the revenue threshold and narrowing the category definitions. Specifically, rather than using a 15% threshold and the broad "enterprise SaaS platforms serving telecom operators" category, we recommend a 25% revenue threshold and a definition focused on companies deriving more than twenty-five percent (25%) of their revenue from telecommunications services or telecommunications infrastructure — without the enterprise SaaS category. This narrower definition would more precisely target direct competitive threats while excluding the broad universe of technology companies with only tangential telecom exposure.
Recommendation. A narrower activity definition — employing a hybrid scheduled-competitor approach supplemented by a refined revenue-based catch-all — would enhance enforceability and reduce the risk of judicial modification. The enterprise SaaS category should be excluded from the catch-all or, at minimum, defined with greater specificity to avoid capturing companies that are not genuinely competitive with Northgate's core business.
D. The Blue-Pencil Doctrine
New York courts have embraced the doctrine of partial enforcement — commonly referred to as "blue-penciling" — which permits courts to modify or sever overbroad restrictive covenant provisions rather than void them in their entirety. The Court of Appeals endorsed this approach in Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 394, holding that where an employer demonstrates a legitimate interest in enforcing a restrictive covenant, a court may reform the covenant to render it reasonable rather than striking it entirely.
Under this doctrine, if a court determines that a non-compete is overbroad in duration, geographic scope, or the scope of restricted activity, it has the equitable authority to reduce any of these parameters to the level it deems reasonable and enforce the reformed restriction. This is a significant departure from the "all-or-nothing" approach historically applied by some jurisdictions, and it provides an important safety net for employers whose restrictive covenants are found to be partially overbroad.
The practical implications of the blue-pencil doctrine for the Northgate-Harding negotiation are as follows:
As a safety net, the doctrine reduces the risk that an overbroad initial restriction will be invalidated entirely. If Northgate insists on broader terms — such as a twenty-four month worldwide restriction — and a court subsequently determines that such terms are overbroad, the court is more likely to reform the restriction (e.g., to eighteen months within North America and Western Europe) than to refuse enforcement altogether. This provides a measure of downside protection.
However, reliance on blue-penciling as a drafting or litigation strategy is risky for several reasons. First, invoking the blue-pencil doctrine requires Northgate to initiate enforcement proceedings — typically through a motion for a temporary restraining order and preliminary injunction — which imposes substantial litigation costs, management distraction, and reputational risk, particularly in the context of a public company CEO departure that is likely to attract media attention. Second, the reformed restriction is subject to the court's discretion, and Northgate cannot predict with confidence how narrowly the court will draw the lines. A court that perceives overreach in the original drafting may reform the restriction to a scope that is materially narrower than what Northgate would have achieved through careful initial calibration. Third, some New York courts have suggested that they may decline to blue-pencil where the original restriction was so overbroad as to suggest bad faith or an intent to overreach. See, e.g., Kanan, Corbin, Schupak & Aronow, Inc. v. FD Int'l, Ltd., 8 A.D.3d 86, 87 (1st Dep't 2004). Fourth — and of particular practical significance in the context of a CEO departure — the enforcement timeline may be too slow to provide meaningful protection. If Harding resigns and joins a competitor, the process of seeking emergency injunctive relief, litigating the enforceability of the restriction, and obtaining a judicial determination of the appropriate reformed scope could take weeks or months, during which Harding could already be embedded in a competitor's organization and accessing competitive information.
Recommendation. The non-compete provisions should be drafted to be enforceable as written, without reliance on judicial reformation. The agreement should include a severability clause expressly providing that if any provision of the restrictive covenant is found to be overbroad or otherwise unenforceable, the court is authorized to reform the provision to the maximum scope permitted by applicable law. This clause should be framed as a fallback protection, not as a substitute for careful initial drafting.
IV. Interaction of Garden Leave with Non-Compete Enforceability
Garden leave provisions, under which the employee remains on the employer's payroll and continues to receive compensation but is not required to perform active duties during a specified notice period, serve an important function in the enforceability analysis of post-termination non-compete agreements. By compensating the executive during a portion of the restrictive period, a garden leave provision demonstrates that the employer is not imposing a unilateral burden on the departing executive but is instead providing financial support as part of a balanced arrangement. New York courts have recognized garden leave favorably as evidence that a restrictive covenant is reasonable and that the employer has provided adequate consideration for the restriction. See, e.g., Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22 (S.D.N.Y. 2010).
The parties' respective positions on garden leave are as follows:
Northgate proposes a six (6) month garden leave period, during which Harding would continue to receive his base salary only ($1,750,000 annualized, yielding approximately $875,000 for the six-month period). During the garden leave period, Harding would remain an employee of NTP US but would not be required to perform active duties (except for transitional cooperation as reasonably requested). The garden leave period would run concurrently with the first six (6) months of the non-compete period.
Harding demands a twelve (12) month garden leave period at full compensation — base salary plus a pro-rata annual bonus — running concurrently with the non-compete period. Under Harding's proposal, the garden leave and non-compete would run fully concurrently for twelve months, which would mean that under Harding's 12-month non-compete proposal, the entire non-compete period would be covered by garden leave, and there would be no post-garden-leave non-compete restriction at all. Even under Northgate's 24-month non-compete proposal, Harding's garden leave demand would reduce the post-garden-leave restriction to twelve months.
The key considerations for structuring garden leave are as follows. First, the garden leave period should be long enough to provide meaningful financial support to the executive during the initial phase of the restriction, when the hardship is most acute and the court's scrutiny is most focused. Second, garden leave should not be so extensive as to eliminate the post-garden-leave non-compete restriction entirely, which would undermine the purpose of the non-compete. Third, the compensation provided during garden leave should be sufficient to demonstrate good faith but need not replicate the executive's full active-duty compensation, as the executive is not performing services during the garden leave period.
Recommendation. A six (6) month garden leave period, running concurrently with the first six (6) months of the non-compete period, is appropriate. If paired with our recommended eighteen (18) month total non-compete duration, this structure would yield a twelve (12) month post-garden-leave restriction. During the six-month garden leave period, Harding would continue to receive his base salary ($875,000 for six months), providing meaningful financial support while preserving a substantive post-employment non-compete period. This structure is consistent with market practice for CEO-level employment agreements and strengthens the enforceability of the overall restrictive covenant package.
V. Consideration in the Employment Context
Under New York law, the enforceability of a restrictive covenant requires adequate consideration. For restrictive covenants entered into at the inception of the employment relationship — as distinguished from restrictions imposed on an existing at-will employee during the course of employment — the employment itself constitutes sufficient consideration. See Vane Kaplan CPAs LLP Seidman, 93 N.Y.2d at 393; Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D.2d 250, 255 (2d Dep't 1992). The rationale is straightforward: the employee receives the benefit of employment, including compensation and other benefits, in exchange for accepting the restrictive covenant as a condition of employment.
For the proposed Harding employment agreement, the consideration question does not present a concern. The non-compete would be embedded in the initial employment agreement — it is a condition of the employment offer, negotiated as part of the comprehensive employment package, and agreed to by Harding as a condition precedent to his commencement of service. It is not a mid-employment amendment or an additional restriction imposed on an existing employee.
Moreover, the substantial consideration associated with the Harding employment package provides additional support for enforceability well beyond the baseline. Specifically, the proposed package includes: (i) a sign-on cash bonus of $5,000,000; (ii) a sign-on equity grant of $18,400,000; (iii) annual base salary of $1,750,000; (iv) target annual bonus of $3,062,500 (representing 175% of base salary); and (v) target annual long-term incentive awards of $9,000,000, yielding total target annual compensation of approximately $13,812,500. The aggregate financial commitment represented by this package — particularly the substantial sign-on payments of $23,400,000 in cash and equity — provides powerful evidence that the non-compete is supported by valuable consideration and that the executive entered into the restriction as part of a carefully negotiated, arm's-length transaction.
In the event of a challenge, the robustness of this consideration package would further buttress enforceability. No court is likely to conclude that a non-compete entered into as part of a $13.8 million annual compensation package, with $23.4 million in sign-on payments, lacks adequate consideration.
VI. Pending New York Legislation: Proposed Ban on Non-Compete Agreements
A. Legislative History and Current Status
The New York State Legislature has considered bills in recent legislative sessions that would prohibit or severely restrict the use of non-compete agreements in the employment context. These legislative efforts reflect a broader national and state-level trend toward restricting or banning non-competes, driven by concerns about labor market mobility, wage suppression, and the disproportionate impact of non-competes on lower- and middle-wage workers.
The most significant legislative development occurred in 2023. In that session, the New York State Senate and Assembly each passed a bill — Senate Bill S3100A — that would have broadly banned non-compete agreements for all workers in New York, including senior executives. The bill defined "non-compete agreement" expansively to include any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts the covered individual from obtaining employment after the conclusion of the employment relationship with the employer. The bill would have voided any such agreement as against public policy, imposed civil penalties on employers who entered into or attempted to enforce non-compete agreements, and created a private right of action for affected workers.
On December 22, 2023, Governor Kathy Hochul vetoed the bill. In her veto message, the governor expressed concern about the breadth of the prohibition, noting that the bill would have banned non-competes for all workers regardless of compensation level, seniority, or the nature of the employer's protectable interests. The governor specifically cited concerns about the potential impact on the ability of employers to protect trade secrets, confidential information, and legitimate business interests through narrowly tailored restrictive covenants. The governor indicated openness to a more targeted approach — for example, a ban limited to workers below a specified compensation threshold, with a carve-out for senior executives or for restrictions necessary to protect trade secrets.
As of the date of this memorandum — June 6, 2024 — revised versions of the bill have been introduced in the 2024 legislative session. These revised bills reflect various modifications intended to address the governor's stated concerns, including:
• Potential carve-outs for senior executives above a specified compensation threshold (with thresholds ranging from $250,000 to $500,000 in various proposed versions);
• Carve-outs for agreements that are narrowly tailored to protect trade secrets or confidential information;
• Distinctions between outright bans and limitations on duration, scope, or consideration requirements; and
• Prospective-only effective dates (applying to agreements entered into after the date of enactment) versus retroactive provisions affecting existing agreements.
No bill has been enacted as of the date of this memorandum. The legislative outlook remains uncertain: while there is strong legislative support for some form of non-compete restriction, the governor's veto and the ongoing process of revising the bill to address executive concerns suggest that a comprehensive ban is not imminent. However, the legislative trajectory is clearly in the direction of greater restriction.
B. Potential Impact on the Proposed Harding Non-Compete
The potential enactment of non-compete legislation in New York presents several scenarios that could affect the proposed Harding employment agreement:
Scenario 1: Broad ban enacted without executive carve-out. If the legislature enacts a ban in its broadest form — applying to all workers regardless of compensation level and without a carve-out for senior executives — the non-compete provisions of the Harding employment agreement would be unenforceable, regardless of how reasonably they are drafted. In this scenario, Northgate's protective interests would depend entirely on the agreement's non-solicitation, non-disclosure, and other restrictive covenant provisions that are not classified as "non-compete agreements" under the statute.
Scenario 2: Ban with executive carve-out above compensation threshold. If the legislature enacts a ban with a carve-out for executives above a specified compensation threshold — and Harding's compensation exceeds that threshold, which it almost certainly would under any threshold that has been proposed to date — the non-compete provisions would remain enforceable, subject to the existing common-law reasonableness analysis discussed in Section III above.
Scenario 3: Prospective-only effective date. Some proposed versions of the bill include a prospective-only effective date, meaning the ban would apply only to non-compete agreements entered into after the date of enactment. If the Harding employment agreement is executed before the effective date, the non-compete provisions would be unaffected by the legislation. Conversely, if the agreement is executed after the effective date, the non-compete provisions would be subject to the new law.
Scenario 4: Retroactive application. Other proposed versions include a retroactive component that could affect existing agreements. Under such a provision, even a non-compete executed before the effective date could be rendered unenforceable as of the date the statute takes effect. This scenario represents the most disruptive outcome for Northgate.
The timing of the proposed Harding employment agreement is directly relevant to this analysis. The proposed start date for Harding is October 1, 2024 (with November 1, 2024, as an alternative under discussion). Any legislation enacted between now and the date of execution — which is expected to occur in August or September 2024 — could be directly applicable. Given the current pace of the legislative process, enactment before October 2024 is possible but not certain. The 2024 legislative session is expected to conclude in June, with a potential special session or lame-duck activity later in the year.
Risk Assessment. The governor's veto in December 2023 and the ongoing legislative negotiations suggest that a comprehensive ban is not imminent, but the directional trend is unmistakable. The national landscape provides additional context: the Federal Trade Commission issued a final rule in April 2024 banning most non-compete agreements nationwide, though that rule is subject to pending legal challenges and its effective date (currently September 4, 2024) may be delayed or blocked by court order. Several states — including California (which has long prohibited non-competes), Colorado, Minnesota, Oregon, Washington, and others — have enacted various forms of non-compete restrictions. New York's legislative activity is consistent with this broader pattern. While the specific outcome in New York remains uncertain, the risk that some form of restriction will be enacted in the near to medium term is material and should be reflected in the structuring of the Harding agreement.
C. Risk Mitigation Strategies
In light of the pending legislative developments, we recommend the following risk mitigation strategies for the Harding employment agreement:
Savings Clause. The agreement should include a comprehensive savings clause providing that if any non-compete provision becomes unenforceable — whether due to a change in law, judicial determination, or otherwise — the remaining restrictive covenant provisions (including the non-solicitation, non-disclosure, non-disparagement, and cooperation obligations) survive in full force and effect. This clause should be drafted to ensure that the unenforceability of the non-compete does not create a domino effect that invalidates the other protective provisions.
Robust Non-Solicitation Provisions. The non-solicitation provisions should be drafted to serve as effective fallback protections in the event the non-compete is invalidated. In particular, the employee non-solicitation provision should broadly restrict Harding from soliciting, recruiting, hiring, or inducing the departure of any NTP employee or independent contractor, and the customer non-solicitation provision should restrict Harding from soliciting or servicing any NTP customer or prospective customer with whom he had material contact during the final twenty-four (24) months of employment. Non-solicitation provisions are generally less vulnerable to legislative challenge than non-compete provisions, as they are narrower in scope and more directly tied to the employer's specific customer and workforce relationships.
Robust Non-Disclosure Obligations. The confidentiality and non-disclosure provisions should be independently robust and should not be conditioned on, or cross-referenced to, the enforceability of the non-compete. These provisions should define "Confidential Information" broadly (but with reasonable specificity), impose a perpetual non-disclosure obligation (or, at minimum, one extending several years beyond the termination of employment), and include a covenant not to use Confidential Information for any purpose other than the performance of Harding's duties for NTP. Non-disclosure obligations are generally unaffected by non-compete legislation and remain enforceable under both common law and statutory trade secret protections.
Alternative Choice of Law. Consideration should be given to whether the agreement should include a choice-of-law provision specifying an alternative jurisdiction — such as Delaware, where both NTP US and Marlowe Asset Management Digital Holdings are incorporated — in the event New York enacts a ban on non-competes. However, such "fallback" choice-of-law provisions carry their own risks: a New York court might decline to enforce a choice-of-law clause whose apparent purpose is to evade New York's public policy, and the question of whether a post-enactment choice-of-law switch would be effective is untested. We recommend discussing this option with the engagement team but proceeding with caution.
Monitoring. We recommend that the engagement team monitor the status of the pending New York legislation on a real-time basis throughout the negotiation and execution process. If a bill is enacted before the agreement is executed, the restrictive covenant provisions will need to be re-evaluated and potentially restructured in light of the new statutory framework.
VII. Application to the Specific Negotiation Dynamics
A. Comparative Analysis: Northgate's Proposal vs. Harding's Demand
The following table summarizes the parties' respective positions on the key elements of the restrictive covenant package, along with our enforceability assessment and recommended target outcome:
B. Harding's Existing Marlowe Asset Management Non-Compete as a Benchmark
Harding's current non-compete with Marlowe Asset Management Digital Holdings, Inc. warrants specific attention as a negotiation dynamic. The Marlowe Asset Management non-compete provides for a twelve (12) month post-termination non-competition period with a geographic scope limited to the United States. This restriction was agreed to when Harding was hired as Chief Operating Officer of Marlowe Asset Management approximately four years ago and was negotiated in the context of a compensation package with a lower total value than the proposed NTP package.
Counterparty counsel at Hargrove & Liddell will predictably deploy the Marlowe Asset Management non-compete as a benchmark argument, contending that if Marlowe Asset Management — a company with an approximate market capitalization of $34 billion, roughly three times the market capitalization of Northgate at approximately $11.1 billion — considers twelve months