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.

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.





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.

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.

NJ Legislature Introduces Bill to Limit Non-Compete Agreements

New Jersey State Assemblymen Peter J. Barnes, III, Joseph V. Egan and Wayne P. Deangelo recently introduced a bill in the New Jersey State Assembly which limits the enforceability of certain post-employment restrictive provisions in employment contracts if the individual who is subject to these restrictions is eligible for unemployment compensation in the state. The bill provides that if an unemployed individual is found to be eligible to receive unemployment compensation benefits, that individual shall not be held bound by any covenant, contract or agreement not to compete, not to disclose or not to solicit.

The rationale behind the bill is to make it easier for a terminated employee to become re-employed. Although it is unclear if the Governor will ultimately sign the bill into law, there appears to be support within the state Assembly and Senate.

The bill, as written, only applies to agreements entered into after the date of the law’s enactment. Therefore, we expect to see more employers requiring that their employees sign these restrictive covenants in the near term in order to avoid potential coverage under the law. Employers may also design these contracts to provide for severance in the form of salary continuation pay so that the former employee may not be deemed eligible for unemployment during the term of the non- compete/non-solicitation.

The issues surrounding most post-termination agreements are complicated. We suggest that both the executives required to sign these agreements, as well as the companies who would like to enforce these agreements, consult a reputable employment law attorney to determine if the contract is reasonable and enforceable.

Young Veterans Facing High Unemployment

According to CBS News, younger veterans who served in the years following the Sept. 11 attacks are having a harder time finding work than their civilian peers. The unemployment rate for veterans between 18 and 24 exceeded 20 percent last year and was also in double digits for those 25-34. CBS News reports that the unemployment rate for both age groups was higher than for their non-veteran peers and much higher than the national average.

This persistent problem has continued despite a wide range of private and public efforts to address the situation. For example, Congress has approved tax credits for companies that hire veterans and federal agencies have stepped up their preferential hiring of vets. In the private sector, companies such as Wal-Mart, General Electric and many others have announced programs designed to hire more veterans.

In the legal realm, it is unlawful for employers to discriminate against persons based on their status as a veteran. If you are a veteran who has had difficulty finding or keeping a job because of your military service, consider getting advice from a competent employment lawyer regarding your particular situation.

Top Ten Ways to Maximize Your Unemployment Insurance Benefits

Traub Law, LLC has recently published a white paper entitled “Top Ten Ways to Maximize Your Unemployment Insurance Benefits.” Readers of this blog and visitors to our website can download this white paper for free.

The paper describes several ways that employees can improve their chances of being awarded unemployment insurance benefits. Some are obvious, such as “do not resign voluntarily.” Some are not so obvious, including what to say and what not to say to the Department of Labor at the initial fact-finding teleconference.

If you are recently laid off or terminated from your job, or considering whether or not to resign, take a few minutes to read up on this important subject.

Employers Call for Easing H-1B Visa Restrictions

Manufacturers are calling for restrictions on the current H-1B non-immigrant visa program to be lifted, calling them too rigid and a hindrance to the economy. In particular, automobile companies in Michigan want the H1-B program opened to skilled laborers for manufacturing jobs which are currently vacant.

The H-1B visa, which was created in the 1990s to fill a need for skilled information technology workers, allows foreign workers to take jobs in the U.S. for up to three years. Year after year, H-1B workers provide specialized computing and other skills to companies in the United States. The program accepts no more than 65,000 workers and is capped at an additional 20,000 for those with a master’s degree.

Automotive manufacturers want these caps lifted and the qualifications for obtaining an H1-B
visa eased to address a shortage of skilled laborers. Approximately 600,000 skilled laborer positions remain open in the United States.

Critics of the H-1B visa program claim that inviting non-immigrant workers into the country will mean that jobs will be taken from American workers. However, if there is a shortage of local skilled laborers, the industry in question could relocate, taking business with them, along with any potential job opportunities. Therefore, lifting restrictions on the H-1B visa program may be beneficial to the economy.