Trade Secrets

BDO Seidman v. Hirshberg: New York's Blueprint for Partially Enforcing an Overbroad Covenant

New York's high court refused to void an overbroad non-compete outright, instead narrowing it to the clients the employee personally served and articulating the state's modern reasonableness test.

October 8, 2025
An accountant meeting with a client across a conference table
An accounting firm's fee-reimbursement clause became New York's leading statement on when courts will rewrite, rather than void, a restrictive covenant. Shutterstock
Educational content, not legal advice. This article explains general legal concepts. It does not create an attorney–client relationship. For your specific situation, consult a licensed attorney.

BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (N.Y. May 13, 1999), is the case that defines how New York treats a restrictive covenant that reaches too far. Where California voids non-competes categorically, New York asks whether a covenant is reasonable — and, crucially, what a court should do when it is not. In an opinion by Judge Levine, the New York Court of Appeals refused to follow the lower courts’ all-or-nothing instinct. Rather than strike an overbroad covenant in its entirety, the court partially enforced it, narrowing the restraint to the firm’s legitimate interest and remitting for further proceedings on damages. The decision supplies both New York’s modern reasonableness standard and its disciplined approach to “blue-penciling,” making it the natural counterpoint to California’s flat prohibition.

At a glance

  • Case: BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999)
  • Decision: May 13, 1999, New York Court of Appeals (Levine, J.)
  • Courts below: Supreme Court granted summary judgment to the employee; the Appellate Division affirmed, holding the covenant wholly unenforceable
  • Instrument: A “Manager’s Agreement” reimbursement clause requiring the departing accountant to pay 1.5 times the prior year’s fees for any of the Buffalo office’s clients he served within 18 months of leaving
  • Core holdings: (1) New York enforces a restrictive covenant only to the extent it is reasonable; (2) the firm’s legitimate interest reaches only client relationships the employee acquired through firm-provided services, not clients the employee independently brought in or never served; (3) courts may partially enforce an overbroad covenant where the employer acted in good faith and without overreaching; (4) the liquidated-damages formula required further factual development on remand

A fee penalty, not a flat bar

BDO Seidman, a national accounting firm, conditioned Jeffrey Hirshberg’s promotion at its Buffalo office on signing a “Manager’s Agreement.” The restrictive covenant did not forbid Hirshberg from competing outright. Instead, it imposed a reimbursement obligation: if, within eighteen months of leaving, he served any client of BDO’s Buffalo office, he had to pay the firm 1.5 times the fees BDO had charged that client during the last fiscal year of his employment. After he resigned, Hirshberg began serving roughly 100 of the firm’s former clients, and BDO sued to collect under the clause.

The trial court granted Hirshberg summary judgment, holding the clause an overbroad and unenforceable anticompetitive restraint, and the Appellate Division agreed that the entire agreement was invalid. The Court of Appeals took a markedly different path — neither enforcing the covenant as written nor discarding it wholesale.

New York’s reasonableness standard

The court restated the common-law framework that governs employee restrictive covenants in New York. A restraint is enforceable only if it satisfies a three-pronged overbreadth test: it must be (1) no greater than required to protect the employer’s legitimate interest, (2) not unduly harsh or burdensome to the employee, and (3) not injurious to the public. That overbreadth analysis sits atop the familiar requirement that a covenant be reasonable in time and geographic scope. Reasonableness, in other words, is not a single inquiry but a set of constraints, each of which a covenant must independently survive.

The decisive prong here was the first: legitimate interest. New York recognizes a limited set of interests that can justify a post-employment restraint — protecting trade secrets and confidential information, guarding against competition by an employee whose services are truly unique or extraordinary, and protecting client goodwill the employer developed at its own expense. The court held that BDO’s covenant swept past that boundary. The firm had a legitimate interest in the client relationships Hirshberg had acquired because of the firm — clients he came to serve through BDO’s investment and introductions. It had no protectable interest in clients with whom Hirshberg never developed a relationship through firm services, nor in clients he had brought to the firm or recruited through his own independent efforts. As to those, the restraint protected nothing the firm had built and merely suppressed ordinary competition.

Partial enforcement instead of forfeiture

The opinion’s lasting contribution is its treatment of remedy. The lower courts had reasoned that because the covenant reached too far, the whole thing failed. The Court of Appeals rejected that reflex. It held that an overbroad covenant may be partially enforced — judicially narrowed to the scope of the employer’s legitimate interest — where the circumstances justify it. Here, that meant enforcing the reimbursement obligation only as to the clients Hirshberg had personally served through BDO, and not as to the broader universe of the office’s clients.

But the court fenced partial enforcement with an important condition, mindful of the incentives it creates. Courts should narrow rather than void an overbroad covenant only where the employer “demonstrates an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct” and has otherwise acted in good faith. The court was candid about the policy stakes: if employers could draft sweeping covenants secure in the knowledge that courts will simply trim them to whatever is enforceable, they would face no deterrent against imposing “unreasonable anti-competitive restrictions” on employees in the first place. Partial enforcement is thus a tool reserved for the good-faith drafter, not a safety net for the overreacher. That qualification is what distinguishes New York’s disciplined approach from the more mechanical “blue-pencil” rule of states that simply excise offending words wherever they appear.

Having narrowed the covenant, the court could not finally resolve damages. The proof on the 1.5-times-fees liquidated-damages formula was too thin to determine whether it represented a reasonable estimate of anticipated loss or an unenforceable penalty, so the court remitted for further development of the record.

Open questions

The framework BDO Seidman built leaves recurring questions. First, the line between a client relationship “acquired” through firm services and one the employee independently developed is fact-intensive and contested in nearly every departing-professional dispute. Second, the good-faith precondition for partial enforcement invites litigation over what counts as “overreaching,” with no bright line separating aggressive-but-permissible drafting from coercive misconduct that forfeits narrowing. Third, the opinion addresses a fee-reimbursement covenant rather than an outright activity bar, leaving room to argue how its reasoning maps onto flat non-competes and onto liquidated-damages clauses generally. Finally, New York’s statutory landscape has since drawn legislative attention to non-competes, and how a future statutory regime would interact with BDO Seidman’s common-law reasonableness test remains unsettled.

Implications

  • Overbreadth is not automatically fatal in New York. A covenant that reaches too far may be narrowed and enforced to its legitimate core rather than struck down entirely.
  • Legitimate interest is the gatekeeper. Employers can protect client relationships built at their expense, trade secrets, and uniquely valuable services — not clients the employee brought in or never served.
  • Good faith earns the benefit of partial enforcement. Drafters who overreach or exploit superior bargaining power risk losing the covenant altogether; the narrowing remedy rewards reasonable drafting.
  • Liquidated damages must be a genuine estimate. A fee-based reimbursement formula will be scrutinized to ensure it approximates anticipated loss rather than functioning as a penalty.
  • Jurisdiction is destiny. The same covenant that New York might narrow and enforce would, in California, be void from the outset under Business and Professions Code section 16600.

Frequently asked questions

What is the difference between New York’s approach and California’s? California voids employee non-competes categorically under section 16600. New York enforces a covenant to the extent it is reasonable and protects a legitimate interest, and BDO Seidman permits courts to narrow an overbroad covenant rather than void it, provided the employer acted in good faith.

Which clients could BDO actually protect? Only the clients Hirshberg came to serve through the firm’s investment and introductions. The covenant could not reach clients he had brought to BDO or recruited himself, or clients with whom he never developed a relationship through firm services.

Does every overbroad New York covenant get rewritten by the court? No. Partial enforcement is available where the employer demonstrates good faith and the absence of overreaching or coercive use of bargaining power. Courts withhold the narrowing remedy from employers who impose sweeping, unreasonable restraints, to avoid rewarding overreach.

Authorities and sources