Many states courts and legislatures across the country have recently acted, through rulings, investigations and pending legislation, to limit the application and enforcement of non-compete clauses in an effort to protect workers who are in an unfair bargaining position with their employers. For example, the New York Attorney General (NYAG) has recently conducted a number of investigations into the “rampant use” of non-competes by companies that seek to restrict the post-employment activities of nearly its entire workforce, and not just those employees who are highly skilled or have specialized knowledge.
New York courts generally disfavor restrictive covenants and will only enforce non-competes that are necessary to protect an employer’s legitimate interests, do not impose an undue hardship on the employee, do not harm the public, and are reasonable in duration and geographic scope. New York generally recognizes that employers have a legitimate interest in protecting their businesses from the disclosure of trade secrets, client lists and confidential information as well as the potential loss of its highly skilled workforce. But many companies have been overreaching with their use of non-compete agreements. That is, they are mandating that even low-level employees, those without specialized skills or access to proprietary confidential information sign non-compete agreements that restrict their ability to accept another job even when they were terminated from their current job through no fault of their own (not for “cause”). Many states, such as New York, are acting to prevent the negative economic impact of non-compete agreements and their restraint of trade and job mobility. The NYAG’s office announced in September 2018 that it reached a settlement with WeWork, a co-working and office space company, in which WeWork agreed to completely eliminate or curtail overly broad non-compete agreements for nearly all of its 3,300 employees. WeWork required all employees, even cleaning staff and receptionists to sign non-competes as a condition of employment. As part of the settlement, the company is now dropping the non-compete agreement requirement except for a few high-level executives. Moreover, the NYAG has reached similar settlements with other large companies in an effort to eliminate the broad use of post-employment non-compete agreements for their low-level employees.
In response to growing misuse of non-compete agreements, the NYAG also released “Non-Compete Agreements In New York State – Frequently Asked Questions.” This guidance provides easy-to-understand answers to common questions workers have regarding the law on non-competes.
The overly broad application of non-competes to low-wage employees prompted the NYAG to propose legislation which would ban non-competes for employees earning below $75,000 per year. Assemb.B.A7864A, 2017-2018 Legislative Session (N.Y. May 17, 2017). There are currently no New York statutes governing the general enforceability of non-competes but industry specific proscriptions do exist (i.e., for broadcasting, attorneys and within the financial services industry).
New York and New Jersey Employers should review their current non-compete agreements with employment counsel, in light of the above, to ensure that they have not reached too far in trying to protect valuable trade secrets, proprietary and confidential information.