New York Attorney General Takes Action to Curtail Use of Non-Compete Agreements

Earlier this month, New York Attorney General Eric T. Schneiderman’s office announced that it had secured an agreement from Examination Management Services, Inc. (“EMSI”) to stop using non-compete agreements for most of its New York employees.  EMSI is a Texas-based medical information services provider that required all of its New York employees to sign off on non-compete agreements, without regard to whether they had access to trade secret or other confidential information.  The non-compete agreement that EMSI required its New York employees to sign prevented them from working for a competitor for 9 months after leaving EMSI, within 50 miles of any location in which the employee worked for EMSI.  According to the Attorney General’s office, most of EMSI’s New York employees worked in non-senior level positions and mainly traveled throughout New York to conduct routine physical examinations.

Following a complaint by a former EMSI employee, whose job offer from a competitor was rescinded because of her non-compete agreement, the Attorney General’s office convinced EMSI to release the former employee from her non-compete agreement, not require non-senior level employees to sign them, and to notify current employees and former employees who left within the last 9 months that the non-compete agreement would no longer be in effect.

According to Attorney General Schneiderman, “[r]estricting rank-and-file workers from being able to find other jobs is unjust and inappropriate. . . .  Workers should be able to change jobs without fear of being sued by their prior employer.”

The Attorney General’s office has taken the position that “New York law does not permit the use of non-compete agreements, except in very limited circumstances, such as when an employee has unique skills or access to trade secrets.”  This is quite different from New York’s courts’ statements that although non-compete agreements are disfavored, they are generally enforceable to the extent that they protect a legitimate interest and are not over broad.

Two months ago, the Attorney General’s office announced that Jimmy John’s Gourmet Sandwiches had agreed to stop including sample non-compete agreements in hiring packets provided to its franchisees, and to inform franchisees that the agreements were unlawful.

The New York Attorney General’s recent scrutiny of non-compete agreements appears to be unprecedented, and will likely continue as long as the Attorney General’s office continues to perceive that employers are using them without regard to reasonableness and the interests that they purport to protect.