Restrictive covenants are critical in restaurant ownership agreements to protect business interests, prevent unfair competition, and safeguard proprietary information. However, in New York, courts scrutinize these clauses to ensure they are reasonable and enforceable. Restaurant owners must carefully structure restrictive covenants to comply with state laws while securing their business assets.

What Are Restrictive Covenants?

Restrictive covenants are contractual provisions that limit a partner’s or owner’s actions after leaving the restaurant business. Common types include:

1. Non-Compete Agreements – Prevents an owner from opening or working for a competing restaurant within a defined geographic area and timeframe.
2. Non-Solicitation Agreements – Prohibits former owners from soliciting employees, customers, or vendors.
3. Confidentiality Agreements – Restricts former owners from disclosing trade secrets, recipes, or business strategies.
4. Non-Disparagement Clauses – Prevents former partners from making negative public statements about the restaurant.
   
   

Are Restrictive Covenants Enforceable in New York?

New York courts apply a strict standard when evaluating restrictive covenants, favoring free trade and competition. To be enforceable, a covenant must:

• Protect a Legitimate Business Interest – Examples include safeguarding trade secrets, customer goodwill, or unique operational strategies.
• Be Reasonable in Scope, Duration, and Geography – Overly broad restrictions on time and location are likely to be struck down.
• Not Impose Undue Hardship on the Former Owner – The restrictions cannot prevent an individual from making a living in their industry.
• Not Harm the Public Interest – A non-compete clause that limits dining options or access to specific cuisine may be unenforceable.
  
  

Common Pitfalls in Restrictive Covenants

1. Overly Broad Geographic Restrictions
   • Courts often reject non-compete agreements that cover an excessively large area (e.g., “all of New York State”).
   • Solution: Define reasonable geographic limits based on actual business operations.
2. Unreasonably Long Timeframes
   • New York courts generally allow 6 months to 2 years for non-compete clauses; anything longer may be challenged.
   • Solution: Limit restrictions to a justifiable period based on business needs.
3. Failure to Provide Consideration
   • For a restrictive covenant to be valid, there must be consideration (something of value given in exchange for the restriction).
   • Solution: Ensure the agreement provides benefits such as severance, compensation, or ownership interest.
4. Lack of Specificity
   • Vague or overly general language can render a clause unenforceable.
   • Solution: Clearly define restricted activities, locations, and affected parties.
     
     

Enforcing Restrictive Covenants in New York

If a former owner or partner violates a restrictive covenant, legal action may be necessary. Remedies include:

• Injunctions – Courts can order the violator to cease competitive actions immediately.
• Damages – Compensation for lost business due to violations.
• Settlement Agreements – Negotiating an alternative resolution to avoid litigation.
  
  

Best Practices for Restaurant Owners

• Work with a Business Attorney – Ensure covenants are legally sound and enforceable.
• Tailor Restrictions to Business Needs – Avoid overly broad limitations that courts may reject.
• Include Enforceable Consideration – Offer financial incentives or contractual benefits to strengthen enforceability.
• Regularly Review Agreements – Update covenants to reflect changes in the restaurant industry and legal standards.
  
  

Conclusion
Restrictive covenants in restaurant ownership agreements serve a crucial role in protecting business interests, but they must be carefully drafted to be enforceable in New York. By ensuring reasonable limitations and legal compliance, restaurant owners can safeguard their competitive edge while avoiding costly disputes. Consulting an experienced attorney is essential to structuring enforceable agreements that withstand legal scrutiny.