2025 New York Restaurant Ownership Agreements: Enforceability of Restrictive Covenants

Restrictive covenants—such as non-compete, non-solicitation, confidentiality, and non-disparagement clauses—are common in New York’s restaurant agreements to protect trade secrets, customer goodwill, and brand reputation. In 2024, the Appellate Division of the Supreme Court of the State of New York, Second Judicial Department ruled that they are enforceable only when tied to legitimate business interests and narrowly limited in scope, time, and geography, stressing that agreements cannot unduly impair livelihoods or stifle competition. What makes this ruling notable is its continued impact in 2025, as the Federal Trade Commission (FTC)’s proposed federal non-compete ban and ongoing litigation keep restrictive covenants under scrutiny. The decision is now cited as a benchmark for defining enforceability.

For restaurant owners, the takeaway is clear: sweeping bans against working at “any restaurant” are unlikely to survive, but narrowly tailored protections—such as a short, local restriction—may hold up to safeguard trade secrets, customer relationships, or staff stability.

If you have questions about restrictive covenants in restaurant ownership agreements or need tailored legal support, please contact our Managing Partner, Richard Liu, at contact@consultils.com.

Legal Framework in New York

Restrictive covenants are governed by New York common law, where courts apply a “rule of reason” test that balances legitimate business needs against an individual’s right to work and the public interest in competition. Such covenants are enforceable only if they are reasonable in scope, time, and geography, and if they serve a legitimate business interest. Courts closely evaluate these factors to determine enforceability：

• Legitimate Purpose:

  • Restrictions must be linked to the protection of confidential information, trade secrets, or customer relationships. Provisions intended solely to prevent competition are generally invalid.

• Reasonable Duration and Scope:

  • Courts often limit enforceability to narrow timeframes (typically 6–12 months) and specific geographic areas tied to the restaurant’s market. Multi-year, statewide, or nationwide restrictions are commonly struck down.

• Adequate Consideration:

  • Covenants must be supported by clear, specific consideration, such as salary continuation, severance, or partnership benefits. Without proper consideration, restrictions risk unenforceability.

• Clarity and Specificity:

  • Courts disfavor vague terms like “any competitor” or “anywhere in New York.” Agreements must define restricted activities and covered regions precisely.

Recent Court Trends

New York courts remain cautious of broad non-competes but may narrow and partially enforce overbroad provisions rather than void them outright. Applied to the restaurant industry, this means that while a blanket ban on “working at any restaurant in New York State” would almost certainly fail, a court might still narrow such a clause to a shorter duration and a limited geographic radius tied to the restaurant’s actual market area, provided the underlying purpose is to protect trade secrets, customer goodwill, or brand reputation.

• Non-Compete Clauses – Enforced only when narrowly tailored to protect proprietary recipes, customer lists, or unique brand concepts; sweeping restrictions are routinely struck down.

• Non-Solicitation – More likely upheld when preventing poaching of staff or targeting existing customers, but blanket prohibitions on contacting “any potential customer” typically fail.

• Balancing Test – Courts weigh the business’s need for protection against the individual’s right to work. If a covenant effectively blocks someone from pursuing a career in the restaurant industry, it is unlikely to survive.

Why It Matters to Restaurant Owners

Although the ruling was issued in 2024, it continues to spark debate in 2025 because restrictive covenants remain at the center of broader national policy and business conversation. The FTC’s proposed federal ban on non-compete agreements and ongoing litigation in multiple states have kept employers and workers focused on how far contractual restrictions can go. Against this backdrop, New York’s Appellate Division decision is frequently cited as a benchmark case that clarifies the limits of enforceability: covenants must be tied to legitimate business interests and remain narrow in scope, time, and geography.

For restaurant owners—an industry marked by high employee turnover, proprietary recipes, and intense local competition—the case has direct relevance. Broad non-competes that seek to bar former staff from working in “any restaurant” are unlikely to survive scrutiny. Instead, courts will uphold only narrowly tailored protections, such as preventing disclosure of trade secrets, misuse of customer lists, or poaching of staff. In 2025, this precedent serves as a practical guide: contracts should protect genuine business assets while respecting employees’ right to pursue their livelihoods.

What Restaurant Owners Should Do 

Given this heightened scrutiny, restaurant owners and partners in New York should take proactive steps:

1. Review existing agreements – Audit ownership and employment contracts to ensure restrictive covenants are reasonable and enforceable under New York law.

2. Ensure fair consideration – Confirm that each covenant is supported by legitimate consideration, such as salary continuation, severance pay, training, or ownership interests. Without a clear exchange of value, even well-drafted clauses may be deemed unenforceable.

3. Draft narrowly tailored clauses – Limit restrictions to what is truly necessary for protecting trade secrets, customer goodwill, or staff stability. For example, a six-month restriction within a specific neighborhood where the restaurant operates is far more likely to hold up than a multi-year statewide ban.

4. Avoid overreach – Resist the temptation to impose blanket prohibitions, such as “working at any restaurant” or “soliciting any potential customer.” Courts often strike these down, and including them can undermine otherwise valid portions of an agreement.

5. Seek legal guidance before enforcement – Always consult counsel before attempting to enforce a covenant. Overly broad provisions can backfire in litigation, exposing the business to reputational damage and legal costs.

New York courts will uphold restrictive covenants only when they are narrowly drafted, fairly supported, and designed to protect legitimate business interests. For restaurant owners, the lesson is precision: agreements that overreach are unlikely to survive judicial review, while carefully tailored clauses stand the best chance of protecting the business without crossing legal limits.

If you have questions about restrictive covenants in restaurant ownership agreements or need tailored legal support, please contact our Managing Partner, Richard Liu, at contact@consultils.com.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.

Email: contact@consultils.com | Phone: 626-344-8949