NY Rejects Non-compete Agreements for Rank and File

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.

Worker Who Quits for a Better Job May Still Get Unemployment Benefits

Worker Who Quits for a Better Job May Still Get Unemployment Benefits

September 2017

Unemployment benefits
I was pleased to read that the NJ Appellate Division gave a fair reading to a recent amendment to the NJ unemployment compensation statute in order to award benefits to a displaced worker.

In McClain v. Board of Review, the Appellate Division overturned the New Jersey Board of Review’s denial of unemployment benefits to Patricia McClain who left her job as a teacher at one private school to take a job at another – but then found herself unemployed after the second school rescinded its offer of employment.

McClain applied for unemployment benefits after she learned that her new job offer had been rescinded.  Her claim was denied and she appealed.  The Appeal Tribunal affirmed the denial of benefits, holding that she was disqualified from receiving unemployment compensation benefits because she left her first job “voluntarily without good cause attributable to such work.”  The Appeal Tribunal also noted that there is a recently enacted exemption from the disqualification for an individual who voluntarily leaves work with one employer to accept from another employer employment which commences not more than seven days after the individual leaves employment with the first employer, if the employment with the second employer has weekly hours or pay not less than the hours or pay of the employment of the first employer [and the employee is terminated from the second job.]  The Appeal Tribunal determined McClain was not covered by the exemption because she did not actually commence employment with the second employer within seven days of her last day of employment at the first employer.  She was scheduled to start with the second employer within the seven days, but that offer was rescinded before she could start.  The Appeal Tribunal determined McClain was not covered by the exemption because she did not actually commence employment with the second employer within seven days of her last day of employment with the first employer.

The Board of Review, on appeal, also denied McClain’s application for unemployment benefits on the same grounds.

The three-judge Appellate Division panel, disagreed, and held that “a claimant need not actually start the new employment to be exempt from disqualification.”  The Court said the issue was a question of interpretation, and added that the statute should be interpreted liberally so as not to penalize workers who leave one job for another that pays better.  They also noted that 26 other states have adopted similar statutes and interpreted them similarly.  Finally, the Court noted that there was nothing in the legislative record to support the imposition of a condition that a claimant begin working the new job within seven days in order to be eligible for benefits.







New Jersey Court Enforces Non Compete Clauses Contained in a “Clickwrap” Agreement

New Jersey Court Enforces Non Compete Clauses Contained in a “Clickwrap” AgreementNew Jersey Court Enforces Non Compete Clauses Contained in a “Clickwrap” Agreement

In a recent New Jersey federal case, ADP LLC v. Lynch, 3d Cir. (Ambro, U.S.C.J.), the Third Circuit declined to lift an injunction prohibiting two former employees of ADP from soliciting its clients on behalf of a competitor. The injunction partially enforced non-compete agreements that Jordan Lynch and John Halpin agreed to online in what is commonly referred to as a “clickwrap” agreement. A clickwrap agreement is a type of contract in which a user must agree to terms and conditions prior to using the product or service. These are commonly used in the software or technology industry. It is interesting to see a court confirm its enforceability in the employment context.

Messrs. Lynch and Halpin each participated in ADP’s stock award plan for five consecutive years. To participate, they had to click on an electronic box to acknowledge that they had read related documents. Those documents included restrictive covenants which state that the employee cannot (1) solicit certain clients and prospective clients of ADP for one year after they stopped working for the company; (2) disclose any of ADP’s confidential information; or (3) use ADP’s confidential information regarding the identity of the company’s current, past or prospective clients. Mr. Lynch also signed a separate agreement, containing similar restrictions.

The employees resigned their sales positions at ADP and joined its direct competitor, Ultimate Software Group (“USG”). ADP sued Mr. Halpin and Mr. Lynch, asserting that they had violated their restrictive covenants. It also sought a preliminary injunction to prohibit them from working for USG and from soliciting ADP’s clients. Mr. Halpin and Mr. Lynch claimed that they never actually read or agreed to the restrictive covenants and therefore, the court should decline to enforce them as written.

The District Court, on June 30, 2016, granted a partial injunction, ruling that the employees had clicked on the box indicating that they read the documents related to the stock award plan and therefore they could not claim they did not actually read those documents. The Court further ruled that even though the two employees merely acknowledged that they had read the documents (and did not indicate specifically that they agreed to the terms), they were bound by the restrictions since the documents themselves make it clear that they were agreeing to them.

The Court issued a partial injunction ordering the employees not to solicit any of ADP’s current customers or any of its prospective customers who they learned about while they were working for ADP. Moreover, it enjoined them from using any of ADP’s confidential or proprietary information.

It is important to note that the Court did not prohibit Mr. Lynch or Halpin from working for USG at this preliminary injunction stage, stating that this would be too “severe” a restriction at this early phase of litigation. The Third Circuit panel affirmed the issuance of the preliminary injunction.

New Jersey Employees:  Contact Traub Law (609) 951-2204 for representation in employment related claims and disputes.





Ambiguous Jury Waiver in Employment Agreement Unenforceable in Whistleblower Case

Ambiguous Jury Waiver in Employment Agreement Unenforceable in Whistleblower Case

Ambiguous Jury Waiver in Employment Agreement Unenforceable in Whistleblower CaseIn Noren v. Heartland Payment Systems, Inc., Docket No. A-2651-13T3, __N.J. Super. __ (Feb. 6, 2017), the New Jersey Appellate Division held that a provision in an employment agreement which provided that the employee “irrevocably waive[s] any right to trial by jury in any suit, action or proceeding under, in connection with or to enforce this Agreement” was unenforceable as to a former employee’s statutory employment claims.

Following his termination of employment, Noren sued his former employer alleging a violation of the Conscientious Employee Protection Act (“CEPA”), New Jersey’s employment whistleblower law. The lower court denied Noren’s demand for a jury trial based on the jury-waiver provision in his employment agreement and dismissed Plaintiff’s complaint after a lengthy bench trial. Plaintiff appealed, challenging the application of the jury waiver provision to his CEPA claim.

On appeal, the court focused upon the fact that CEPA and the New Jersey Law Against Discrimination (“NJLAD”) expressly guarantee a right to a jury trial. Given the statutorily guaranteed right, the Appellate Court determined that in order for the waiver to be effective it must “clearly explain (1) what right is being surrendered and (2) the nature of the claims covered by the waiver.” The court found that the jury waiver at issue was unenforceable because it did not make any “reference to statutory claims and did not define the scope of the claims as including all claims relating to Noren’s employment.”

The court noted that while it is preferable for a waiver of rights provision to explicitly provide that the employee is waiving his or her statutorily guaranteed rights, it is possible that a waiver provision would be enforceable without such a specific reference so long as the language is clear, unambiguous and sufficiently broad. The court relied upon its earlier decision in Martindale v. Sandvik, Inc., 173 N.J. 76 (2002), which upheld a mandatory arbitration provision which provided for a waiver of any action or proceeding relating to an individual’s employment, or the termination thereof.

In light of the Noren decision, any jury waiver provision should be reviewed by an attorney to determine whether its language is unambiguous and therefore enforceable.

NJ Court Refuses to Require Arbitration of Employment Dispute

The NJ Appellate Division has ruled, once again that it will not require enforcement of an arbitration clause absent a showing that the clause constituted a clear waiver by the plaintiff of his or her right to a jury trial.

In Anthony v. Eleison Pharmaceuticals LLC, Docket No. A-932-15T4 (App. Div. July 18, 2016), a former executive filed a lawsuit against his former employer under the New Jersey Wage Payment Act, alleging that the company failed to pay him wages that were due to him following the termination of his employment. The lawsuit also included breach of contract claims. The employer filed a motion to dismiss the lawsuit and order arbitration pursuant to a clause in the employment agreement which stated, among other things, that “[t]he parties agree that should any dispute arise out of this Agreement, a phased dispute resolution process shall resolve the dispute,” ending in binding arbitration. The trial court granted the employer’s motion, stating that the arbitration clause constituted a valid waiver by the employee of his right to pursue his claims in a judicial forum.

The lower court’s ruling in Anthony was clearly in error. The New Jersey Supreme Court ruled in Atalese v. U.S. Legal Services Group LP, 219 N.J. 430 (2014), that NJ courts will not enforce arbitration clauses unless they contain explicit language informing the employee that he or she was giving up the right to go to court and have a jury trial. The arbitration clause at issue in Anthony clearly did not contain such language. Accordingly, the Appellate Division reversed the lower court and the case will proceed to trial.

Both employers and employees considering arbitration as an alternative dispute resolution forum, should consult legal counsel to confirm that that any agreement signed has the necessary waiver language.

NJ Court Rules Employer Cannot Shorten SOL for Discrimination Claims

We are pleased to write that the New Jersey Supreme Court ruled, last week, that the two-year statute of limitations for filing a discrimination claim under the NJ Law Against Discrimination (“LAD”) couldn’t be shortened by an employer seeking to insert a clause in an employment agreement or contract.

The case arose when Raymours Furniture Co., fired an employee, Sergio Rodriguez who had signed a job application which stated, in capital letters, that he agreed “that any claim or lawsuit relating to [his] service with Raymour & Flanigan must be filed no more than six moths after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.” Mr. Rodriguez claimed that Raymour & Flanigan wrongfully terminated him on account of his disability and in retaliation for filing a workers’ compensation claim. He sued under the LAD nine months after he was fired. Both a trial judge and the Appellate Division ruled that the lawsuit was time-barred, even though New Jersey law allows a plaintiff two years to bring such an action.

The Supreme Court disagreed with the lower courts. The Court noted that the “contractual shortening of the LAD’s two-year limitations period for a private action is contrary to the public policy expressed in the LAD.” The Court noted the unequal bargaining power of the potential employer and employee. Clearly, mandating that the employee agree to a shorter statute of limitations in an employment application before they can be hired is, by definition a contract of adhesion. Although some employers may argue that two-years is too long of a time period to hold an employer responsible for defending an action for discrimination – where documents may have disappeared, key witnesses have left the company and the memories of decision-makers have faded – it is not for a private employer to alter a statutory limitation period by contract. We believe that this could only be done, after careful consideration by the legislature.

Employer Loses Contractual Right to Arbitrate Due to Delay

A recent case from the United States Court of Appeals for the Eighth Circuit makes clear that an employer will lose its contractual right to arbitration if it proceeds in litigation for eight months.  In Messing v. North Central Distributing Inc., the plaintiff, a former Vice President, brought a breach of contract and wrongful termination claim against his former employer.  The company actively engaged in defending the case in the litigation, including filing an answer with 24 affirmative defenses, removing the case to federal court, attending discovery conferences and setting discovery schedules, filing a venue transfer motion, and agreeing to a trial date.  Eight months into the litigation, the employer sought to compel arbitration under the Vice President’s employment contract.  The District Court denied the employer’s motion to compel arbitration, reasoning that the company had waived its right to arbitrate since 1) it knew of the existing right to arbitration, and 2) it had prejudiced the employee by acting inconsistently with that right.
On appeal, the Eighth Circuit upheld the lower court’s ruling, stating that the employer had failed to do “all it could reasonably have been expected to do” to assert its right to arbitration earlier.  Indeed, the employer’s answer did not plead the arbitration clause in its affirmative defenses, nor mention it at the pretrial scheduling conference, nor raise the issue in its motion to transfer venue.  Moreover, the Court credited the lower court’s finding that the employer’s actions had caused the employee prejudice, in that he had been forced to expend considerable time and money litigating the matter in federal court.
While there is a long line of cases which favor arbitration as an alternative way to resolve disputes between parties, employers and employees alike should be aware that a contractual right to arbitrate claims must be asserted in a timely way by the party seeking arbitration.  This “use it or lose it” principle is sometimes an effective way to defeat an otherwise unassailable arbitration provision.

Gov. Christie Vetoes Equal Pay Bill

As reported by NJ.com, Governor Chris Christie has vetoed SB 992, a bill which sought to bar gender-based pay discrimination.  A full text of the proposed legislation may be read here.  The bill would have amended the New Jersey Law Against Discrimination by adding language prohibiting an employer from paying one gender less than the other for “substantially similar” work.  Employers would be permitted to pay workers of different sexes doing similar jobs in an unequal manner only if they could demonstrate that the unequal treatment was justified based on factors such as training, education, experience, or job performance.  The bill also contained a triple damages provision for employees who won cases brought under the law, and a transparency provision mandating that businesses who contract with the State file equal pay information to ensure compliance with the statute.

Governor Christie, in his veto message, criticized the law as “depart[ing] significantly from well-established law” and stated that the law would make New Jersey “very business unfriendly.”  The bill’s main sponsor, Sen. Loretta Weinberg (D-Bergen), has signaled that she may attempt a veto override, in that the bill passed by decisive margins in both houses — 28-4 in the Senate and 54-14-6 in the Assembly.

Pay equity is an important issue to New Jersey’s professional workforce.  There is no question that women and men should be paid the same for the same or similar work.  There is also no question that this bill would have helped New Jersey to achieve its goal of eradicating discrimination from the workplace.

NY Court Rejects FLSA Settlement That Contains a “No Rehire” Provision

We have negotiated many settlement agreements for claims brought under the New Jersey Law Against Discrimination (“LAD”), the Conscientious Employee Protection Act (“CEPA”), and various other New Jersey laws that have included a provision barring the settling employee from seeking future employment with the defendant employer.  Employers argue in favor of including these clauses in order to prevent future claims of retaliation in the event the employer does not agree to re-hire the employee.  Truth be told, most employees have no desire to work again for the offending employer, but these no re-hire provisions can become complicated when companies are sold and/or merged and the employee seeks future employment with the re-constituted employer.

A federal court in New York (see, Reyes v. Hip at Murray Street) recently refused to approve a proposed settlement for a lawsuit brought under the Fair Labor Standards Act because it contained such a no re-hire provision.  It will be interesting to see if there is more push back on these clauses in settlement agreements for a wider range of employment law claims.  Stay tuned!

NJ Supreme Court Rules on Proper Test for Determining Employee or Independent Contractor Status

In a recent case, Hargrove v. Sleepy’s LLC No. A-70-12 (072742)(N.J. Jan. 14, 2015), the Supreme Court of New Jersey held that the proper test to apply when determining an individual’s status for purposes of the New Jersey Wage Payment Law is the “ABC test”.

The case involved three plaintiffs, delivery truck drivers, suing Sleepy’s individually and on behalf of a putative class.  Sleepy’s had contracted with individuals and delivery companies to provide delivery services to its customers.  The plaintiffs claimed that Sleepy’s had misclassified them as independent contractors rather than employees and, in doing so, denied them the benefits and protections that they otherwise would have been entitled to under New Jersey’s wage and hour laws.

The lower federal court applied the federal common law test that focuses primarily on the employer’s ability to control the contractor’s work performance, and awarded summary judgment to Sleepy’s.  The plaintiffs appealed and the Third Circuit asked the NJ Supreme Court to consider the specific question of which test should be applied to determine independent contractor status.  At least four different tests had been used in New Jersey to determine employee vs. independent contractor status for purposes of unemployment, whistleblowing, discrimination and tort claims so the Court in this case was asked to decide which test to use for purposes of the wage and hour laws.

The Supreme Court determined that the “ABC test” governs, a test that is more worker-friendly.  Employers will now have the burden of showing that an individual providing services:

  1. is free from the company’s control in performing services;
  2. performs work outside the usual course of the company’s business or outside the company’s place of business, and
  3. is engaged in an independently established business.

The Court further specified that the failure to satisfy any one of the three criteria means that the worker should be classified as an employee, not an independent contractor for purposes of the wage and hour laws. The Court noted that New Jersey’s wage and hour laws are remedial statutes that should be liberally construed.

Workers and companies alike should consult with employment counsel to determine the proper employment classification under this ABC test.