By Reid Skibell, Partner
A recent ruling from the U.S. District Court for the Southern District of New York serves as an important warning: vague non-compete language can doom an otherwise meritorious position. In Palantir Technologies, Inc. v. Jain, the Court declined to enforce a non-compete provision—even though it found that Palantir had a legitimate interest in protecting its confidential information and that former employees had taken proprietary materials before departing. The fatal flaw? Language barring employees from working for a “similar” business was simply too amorphous to enforce. The ruling offers several practical drafting lessons for employers relying on restrictive covenants.
Palantir sought a preliminary injunction against former employees who left the company to join a new AI venture. The company argued that the employees violated non-compete, non-solicitation, and confidentiality obligations in their employment agreements.
The Hon. J. Paul Oetken concluded that Palantir was unlikely to succeed in enforcing the non-compete provision. The agreement barred employees, for one year after departure, from performing similar job functions for a company engaged in a business “similar” to Palantir’s, “including those engaged in the business of developing and selling analytical software, whether existing or planned.” Because Palantir operates broadly in AI, analytics, software, and consulting across numerous industries, the Court found that the restriction could effectively prevent employees from working for a wide range of companies in the field. In that context, the phrase “similar business” was too imprecise to be enforceable in these circumstances. This was further supported by the fact that the roles of the former employees changed significantly over the course of their employment, yet their non-compete agreements remained the same.
At the same time, the Court found that the employees’ non-solicitation and confidentiality obligations were likely to be enforceable, granting limited injunctive relief based on evidence of recruiting efforts and the transfer of internal company materials before departure.
While both sides characterized the outcome as a victory, the fact remains that the Court’s decision casts doubt on the enforceability of the restrictive covenants contained in the contracts of Palantir’s other employees.
Define competitors with specificity. Employers often use terms such as “similar business” when crafting non-competes because of their perceived breadth. In a landscape of rapidly evolving technology and cross-sector business models, that type of language can render restrictions overly broad and difficult to enforce. Instead, employers should clearly specify the sectors, product categories, or types of competing businesses that employees are prohibited from joining.
Tailor restrictions to the employee’s actual role. While employers typically prefer standardized non-competes for practical reasons, restrictions are more likely to withstand scrutiny when they are limited to the employee’s particular role, business unit, products, or customer relationships, rather than the employer’s full range of operations. Employers should consider adding role-specific language when defining the scope of the non-compete for key employees.
Do not rely on employee misconduct to salvage a broad non-compete. Even where there is evidence suggesting questionable employee conduct, courts may still refuse to enforce a poorly drafted non-compete. In Palantir, the court found that one former employee sent herself documents and accessed confidential information right before leaving. Nevertheless, the court refused to enforce the non-compete because the language was simply too broad.
Employers should audit existing non-compete agreements and update them as employee roles evolve. In the era of AI, new industries and business models are emerging rapidly, and vague non-compete language may no longer provide adequate protection. Proactive review before litigation arises is the best defense against unenforceability.
For specific guidance on navigating broad non-competes or updating a non-compete, please contact Glenn Agre Bergman & Fuentes, LLP.
Reid Skibell is a partner at Glenn Agre. In addition to commercial litigation, Reid provides advice to companies, executives, and professionals in disputes related to discrimination, harassment, employment and separation agreements, compensation, and breaches of non-compete agreements.
This client alert is provided for informational purposes only, and should not be construed as legal advice.
