Are Non-Competes and Non-Solicits Enforceable in New York? What Wall Street Professionals Need to Know
Updated: Aug 26
By Ethan A. Brecher, New York employment attorney, August 22, 2026
If you work in financial services in New York, you almost certainly signed a non-compete, a non-solicitation agreement, or a deferred compensation plan that forfeits your unvested awards if you join a competitor. Firms present these as ironclad. Under New York law, they are not. The Court of Appeals has spent fifty years drawing lines around what an employer can and cannot restrain, and those lines favor the employee more often than firms admit.
New York disfavors non-competes
The starting point is Reed, Roberts Associates v. Strauman, 40 N.Y.2d 303 (1976). The Court of Appeals held that a post-employment restrictive covenant will be enforced only to the extent it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee. In that case, neither the non-compete nor the non-solicit was enforceable, because the employee's knowledge was not a trade secret and his services were not unique.
BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), restated the rule as a three-part test: the restraint must be no greater than required to protect the employer's legitimate interest, must not impose undue hardship on the employee, and must not injure the public. Failure on any one prong invalidates the covenant.
What counts as a "legitimate interest" is narrow
This is where most Wall Street covenants fail. The Court of Appeals recognizes only a handful of interests that justify restraining a former employee:
Trade secrets and confidential customer information. In Columbia Ribbon & Carbon Manufacturing Co. v. A-1-A Corp., 42 N.Y.2d 496 (1977), the Court refused to enforce a covenant that did nothing more than restrain competition, and held that where customer identities are readily ascertainable from outside sources, no trade secret protection attaches and solicitation will not be enjoined. The bar is high even for proprietary financial models. In Ashland Management Inc. v. Janien, 82 N.Y.2d 395 (1993), the Court of Appeals adopted the Restatement's six-factor trade secret test and held that an investment firm's quantitative stock-selection model was not a trade secret, because an analyst could reproduce its results from the firm's own public disclosures. Trading strategies, screening methods, and pricing models that a competent professional could reconstruct from public information do not justify restraining the person who built them. Ashland also held that a firm that terminated an employee as a pretext to avoid its contractual obligations breached the implied duty of good faith, a principle that carries over to firms that fire first and invoke the covenant second.
Unique or extraordinary services. Under Purchasing Associates v. Weitz, 13 N.Y.2d 267 (1963), it is not enough that an employee is excellent or highly valuable. The employer must show the employee is effectively irreplaceable. Very few traders, bankers, or advisors meet that standard, however well compensated they are.
Client relationships developed at the employer's expense. BDO Seidman recognized this interest but limited it sharply. A covenant that reaches clients the employee never worked with, or clients the employee brought in personally without the firm's resources, overreaches.
Overbroad covenants may be trimmed, but only for employers who acted in good faith
BDO Seidman rejected the old mechanical "blue pencil" approach and allowed partial enforcement of an overbroad covenant, but only where the employer shows it did not overreach, did not use coercive bargaining power, and sought in good faith to protect a legitimate interest. A covenant imposed as a take-it-or-leave-it condition of employment, or one the firm knew was overbroad when it drafted it, is a poor candidate for judicial rescue. Columbia Ribbon declined to sever anything where the employer showed no protectable interest at all.
Forfeiture-for-competition clauses: the "employee choice" doctrine
Wall Street firms rarely need an injunction. Their leverage is deferred compensation. Restricted stock, deferred cash, and partnership interests typically vest over years and are forfeited if you leave to compete. New York treats these provisions differently from injunctive non-competes.
Under Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 N.Y.2d 84 (1979), a forfeiture-for-competition clause may be enforced without any reasonableness review when the employee voluntarily resigns and chooses to compete. The theory is that the employee is not barred from working; he simply made a choice to give up a benefit.
But Post also established the doctrine's critical limit. When the employer terminates the employee without cause, the mutuality on which the covenant rests is destroyed, and forfeiture is unreasonable as a matter of law. An employer may not fire you and then use the forfeiture clause to strip your deferred compensation while simultaneously deterring other firms from hiring you.
Morris v. Schroder Capital Management International, 7 N.Y.3d 616 (2006), sharpened the doctrine in two ways. First, the employee choice doctrine applies only to economic forfeiture, never to injunctive relief; a firm seeking to enjoin you must always satisfy the full reasonableness test. Second, the Court adopted the constructive discharge standard: if the firm deliberately made working conditions so intolerable that a reasonable person would have felt compelled to resign, the resignation is treated as an involuntary termination, and the forfeiture loses its protection from reasonableness review.
Planning your departure is not a breach: the faithless servant doctrine
Firms sometimes respond to a resignation by accusing the employee of disloyalty and invoking what New York calls the faithless servant doctrine. The rule is old and harsh: an employee who is faithless in performing his duties forfeits his compensation for the period of disloyalty, including salary and commissions already earned, and the employer need not prove it lost a dollar. The First Department reaffirmed that last point this year in MLN New York Inc. v. Liu, 248 A.D.3d 655 (1st Dep't 2026), confirming an arbitration award against a minority shareholder who falsified employee hours and solicited staff to sue the company in exchange for a kickback, and holding that a faithless servant claim is viable even without proof of damage to the business. Because the remedy is forfeiture of pay rather than compensation for harm, the doctrine is a favorite lever for a firm that wants to withhold a bonus or claw back deferred compensation.
The doctrine has limits, and the Court of Appeals drew the most important one in Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928 (1977). A company's sole national salesman planned and took preliminary steps toward a competing business while still employed. When he sued for his earned commissions, the employer argued he had forfeited them by being faithless. The court disagreed: because he never reduced his effort for the employer and never misappropriated business secrets or special knowledge, planning to compete involved no breach of fidelity, and he kept his commissions. The First Department later applied the same rule to an employee who secretly incorporated a competing business before leaving, holding there was nothing illegal about it so long as he did not use the employer's time, facilities, or proprietary information to build it.
The First Department has also been clear about what the doctrine does not reach. In Beach v. Touradji Capital Management, LP, 224 A.D.3d 470 (1st Dep't 2024), a hedge fund defending a compensation claim by two former portfolio managers argued that one of them was a faithless servant because he had used his work email to send offensive personal messages. The court dismissed that defense as a matter of law. The doctrine applies where the employee has acted directly against the employer's interests, such as embezzlement, improperly competing with the current employer, or diverting business opportunities. Crude emails between willing participants, however embarrassing, are not disloyalty.
What does cross the line is taking the firm's confidential information out the door. In AT Last Sportswear, Inc. v. Byron, 226 A.D.3d 551 (1st Dep't 2024), an employee allegedly copied proprietary information while still employed and shared it to help build a competing company. The court held that the employer could pursue both a breach of contract claim under the confidentiality agreement and tort claims for breach of the duty of loyalty, unfair competition, misappropriation, and conversion, with faithless servant damages including forfeiture of compensation and disgorgement of profits.
The practical lines are clear. You may interview, negotiate an offer, form an entity, and arrange financing while still employed. You may not solicit clients or colleagues for the new venture on the firm's time, copy client lists or files, or let your performance slide. Stay inside those lines and the firm has no faithless-servant claim, whatever the tone of its exit letter.
The Broker Protocol: a safe harbor for financial advisors
If you are a registered representative moving between wealth management firms, there is a separate framework that may override everything above. The Protocol for Broker Recruiting, known as the Broker Protocol, was signed in 2004 by Smith Barney, Merrill Lynch, and UBS, and has since been joined by well over a thousand firms. It is a private agreement among signatory firms, not a law, but within its scope it functions as a safe harbor: if both the firm you are leaving and the firm you are joining are signatories and you follow its terms, neither you nor your new firm has monetary or other liability to the old firm for taking the permitted client information or soliciting the clients you served.
The terms are specific. You may take only five pieces of information about clients you personally serviced: name, address, phone number, email address, and account title. Nothing else, no statements, no account numbers, no notes. Your resignation must be in writing, delivered to local branch management, with a copy of the list you are taking. You may solicit those clients only after you have joined the new firm, not before. If you were part of a team that is not moving together, the team agreement controls which clients you may take, but in no event can it bar you from taking and soliciting the clients you personally introduced.
The Protocol does not bar the old firm from suing the new firm for "raiding," and it does not apply if either firm is not a signatory or has withdrawn. Withdrawals are common and include the biggest names. Of the three founding firms, only Merrill Lynch remains, and it does so subject to stated joinder qualifications. Morgan Stanley withdrew effective November 3, 2017, UBS effective December 1, 2017, and Citigroup effective January 8, 2018. Other major firms participate only in part: J.P. Morgan's membership is limited to advisors in its J.P. Morgan Securities unit, and Wells Fargo added a joinder qualification in June 2026. The Broker Protocol List official signatory list, maintained by J.S. Held, is updated weekly, runs to more than 2,000 entries and records roughly 300 withdrawals and amendments. Before you resign, confirm the current status of both firms on that list and read any qualification attached to the entry. A departure planned under Protocol rules from a firm that withdrew last month is a departure with no protection at all.
What this means in practice
If you were terminated without cause, any forfeiture of deferred compensation tied to competition is presumptively unenforceable under Post, and the non-compete itself must survive the full BDO Seidman test.
If you resigned, the facts surrounding your departure matter. Reorganizations, demotions, stripped responsibilities, and compensation cuts engineered to push you out may support a constructive discharge argument under Morris.
Non-solicits are not automatically enforceable. Clients you brought with you, clients whose identities are publicly known, and clients you never served are generally outside any legitimate interest.
Check the Broker Protocol first if you are a financial advisor. If both firms are current signatories, it may resolve the client-solicitation question entirely. If either is not, you are back in the common-law framework above.
These disputes move fast. A firm may seek a temporary restraining order within days of your resignation, and deferred compensation forfeitures are usually triggered automatically. The time to evaluate your agreement is before you give notice, not after.
I represent traders, bankers, portfolio managers, advisors, and other financial professionals in non-compete, non-solicitation, deferred compensation, and forfeiture disputes against Wall Street firms, in court and in FINRA arbitration. Call 860-590-0138 or email ethan@ethanbrecherlaw.com for a confidential consultation.
Ethan A. Brecher is the principal of the Law Office of Ethan A. Brecher, LLC, 244 Fifth Avenue, Suite B241, New York, NY 10001. This article is for general information and is not legal advice. Attorney Advertising. Prior results do not guaraanteea similar outcome.
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