When professionals, executives, or business owners enter into employment contracts or sell a company, they often agree to restrictive covenants, such as non-compete clauses. But what happens when those restrictions are violated—or when enforcement is delayed? Can the period of restriction be paused or extended? Yes, it is possible.
In New York, the concept of “tolling” plays a key role in these situations. Whether included by contract or applied by a court, tolling can determine how long a non-compete restrictive period lasts—and whether it is enforceable at all.
Here is what you need to know.
What is a Tolling Agreement?
A tolling agreement in the non-compete context is a clause that allows the period of restriction (e.g., one or two years) to pause or extend during any time the agreement is being breached.
For example, if a contract states that a former employee may not compete for 12 months, but that employee secretly violates the restriction for six of those months, a tolling clause can extend the restriction to cover the time lost due to the breach.
Even when not explicitly included in the agreement, courts can apply equitable tolling to prevent a breaching party from benefiting from his or her own misconduct.
Tolling in Employment Contracts vs. Business Sale Agreements
New York courts treat tolling differently depending on whether the restrictive covenant arises out of an employment relationship or a business sale.
Employment Agreements: Strict Standards
- Courts apply narrow scrutiny to non-compete clauses in employment agreements.
- Express tolling clauses can be enforced, especially if the employee received legal counsel and compensation.
- Courts are more cautious about equitable tolling and often refuse to extend the covenant unless there is clear evidence of bad faith or concealed violations.
- Mere departure to a competitor—even if in breach—without deception may not justify tolling.
Business Sale Agreements: Greater Flexibility
- When a non-compete is part of a business sale, New York courts are more inclined to enforce and toll the restriction.
- This reflects a desire to protect the buyer’s investment, goodwill, and the value of the business.
- Even without a tolling clause, courts have extended the restriction where the seller secretly violated the agreement.
- Courts view tolling here as a way to ensure fairness and prevent a seller from undermining the deal through deception.
Equitable Tolling vs. Contractual Tolling: What is the Difference?
- Equitable Tolling applies when a court exercises its discretion, usually to prevent a party from benefiting from a hidden or bad-faith breach—especially common in business-sale disputes.
- Contractual Tolling occurs when the agreement explicitly states that any time spent in breach pauses or extends the restriction time period. These are more likely to be enforced, especially in employment contracts where clarity and legal representation are evident.
Why It Matters
Whether you are:
- Hiring an executive with a past employer restriction,
- Selling your business and signing a non-compete as part of the deal,
- Or facing allegations of violating a restriction yourself,
…tolling provisions can affect your risk, timeline, and options.
They can revive a previously expired restriction, extend a current or pending one, or even be dismissed entirely if poorly drafted or improperly applied.
Key Takeaways for Executives and Business Owners
- Do not assume the clock starts ticking on a non-compete the day someone leaves the company. It may be paused or extended by a tolling clause or a court ruling.
- Employees face stricter scrutiny: courts require clear proof of bad faith and are hesitant to rewrite contracts.
- Business sellers face broader exposure: courts aim to protect the buyer’s investment and are more open to equitable tolling.
- Always review and negotiate tolling clauses—they should not be boilerplate.
- If you are in a dispute, understand how tolling might affect your strategy and timelines.
Need Help Navigating a Restrictive Covenant or Dispute?
At The Glennon Law Firm, P.C., we advise high-level professionals, executives, and business owners on complex disputes involving employment and business agreements, including the enforceability and strategic use of tolling provisions. If you are dealing with a restrictive covenant or facing enforcement, contact us to protect your rights and advance your position. We help employers and employees.
We can help you in Albany, Buffalo, Rochester, New York City, and everywhere in between.
You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.
To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:
- Preliminary Injunctions and Business Asset Sale-Based Non-Compete Agreements: A Comprehensive Guide;
- Navigating the Duty of Loyalty in New York: A Guide for Employers and Employees
- Legalities & Realities® Podcast: Severances and Separation Agreements: What to Consider
- The Glennon Guides: Am I Stuck In This Practice?: A Guide On Non-Compete Agreements For Doctors, Nurses, Dentists, And Other Health Care Providers
This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.