New York Attorney General to Introduce Legislation Aimed at Curbing Misuse of Non-Compete Agreements

By Jeffrey M. Haber

What could this legislation mean for New York businesses?

New York Attorney General Eric T. Schneiderman recently introduced legislation intended to reduce the use of non-compete agreements in the workplace. The bill is designed to protect the rights of workers to find better employment opportunities, particularly for low-wage earners who have been hindered in their ability to move to new jobs because of non-compete agreements.

Schneiderman’s bill includes:

• A ban on all non-compete agreements for low-wage workers;

• A requirement that all non-compete agreements be accompanied by financial incentives; and

• A damages clause for employees who are damaged by unlawful non-compete agreements.

While proponents of the bill, like New York State Senator Diane Savino, believe that requiring low-wage workers to sign a non-compete agreement “goes against the principles of the labor movement, the free market economy and good government policy,” business owners argue that non-compete agreements are critical to business models and retaining quality employees. When these two opposing ideologies clash in the business world, commercial litigation can ensue.

What Could This Bill Mean for Business?

If the Schneiderman bill is adopted, businesses will need to review their policies and agreements pertaining to non-compete agreements. In fact, it may be a good idea for businesses to review their agreements well in advance, to make sure that their non-compete agreements conform to current statutory requirements and case law. Some things to look out for:

1. Is the non-compete agreement too broad? In order for a non-compete agreement to be valid under New York law, it must be reasonable in terms of time, activities and geographic scope. This means that the agreement cannot restrict employee activities outside of business activities and market reach. Additionally, the agreement should not restrict activities longer than one year post-employment.

2. Does the non-compete cover a legitimate business interest? Non-compete agreements are valid under New York law only if they protect things like trade secrets, customer lists or some other legitimate business interest. Businesses should review their non-compete agreements to ensure that they cover employees who have access to these types of information.

3. Does the non-compete apply if the employee is terminated without cause? Enforcing a non-compete agreement when an employee is terminated without cause could land the business in hot water if the non-compete is unreasonable. A court may in fact rule that the entire agreement is completely unenforceable.

Under the proposed scheme, employees may be able to seek damages if they are successful in overcoming the restrictions in a non-compete agreement in court, assuming the employee has actually been damaged.

This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.