This week, the New York State Assembly passed a bill identical to a bill passed by the Senate earlier this month banning non-compete agreements in employment. The bills now await Governor Hochul’s signature. If she signs them, the law will take effect 30 days later. Read on for more information on the non-compete ban.
The New York State Senate recently passed a bill barring noncompete agreements in employment. If the Assembly adopts the bill within the next few weeks, it will be sent to Governor Hochul for signature. It’s likely that the bill won’t make it passed the Assembly, but if it does it will have enormous implications in New York and beyond. Take a look at the text of the bill: S3100A.
Earlier this year, we blogged about the United States Supreme Court’s decision to consider whether requiring employees to agree to arbitration and a waiver of their rights to assert claims through class actions violated the National Labor Relations Act (NLRA). During the Obama administration, the U.S. Department of Justice supported the position of the National Labor Relations Board (NLRB) that requiring class action waivers as a condition of employment violated the NLRA. Now, the Justice Department has switched sides and is supporting business, acknowledging in an amicus brief filed with the Supreme Court on June 16 that “[a]fter the change in administration, . . . [it] reconsidered the issue and has reached the opposite conclusion.”
The cases being considered by the Supreme Court are National Labor Relations Board v. Murphy Oil USA, Case No. 16-307, Epic Systems Corp. v. Lewis, Case No. 16-285, and Ernst & Young LLP v. Morris, Case No. 16-300. The Supreme Court’s decision will directly affect violations of employment laws, like the Fair Labor Standards Act (FLSA) and Title VII of the Civil Rights Act of 1964, as amended. Oral argument in these cases is scheduled for October 2017.
Although courts of appeal are split on the issue, the Second Circuit Court of Appeals (which covers New York, Connecticut, and Vermont) has previously held that class action waivers do not violate the NLRA. As a result, such waivers are currently legal in New York, Connecticut and Vermont.
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.”
In this age of mergers and acquisitions, and increased employee mobility, it is critical that employers and employees understand their respective noncompetition obligations. A Southern District of New York court recently applied the “reasonableness” standards governing enforceability of non-competition agreements, or restrictive covenants, to no-hire agreements. Specifically,in Reed Elsevier Inc. v. TransUnion Holding Company (S.D.N.Y. 13-CV-08739), the court found that the agreement was not necessary to safeguard a “protectable interest” of Reed Elsevier, and was, therefore, unenforceable.
In TransUnion, the parties had entered into an agreement prohibiting TransUnion from hiring certain senior management employees of Reed Elsevier for a time. Ultimately, TransUnion hired the former Chief Technology Officer of Reed Elsevier, after TransUnion purchased the assets of the employee’s subsequent employer, and assumed the former employee’s employment contract. It’s not clear to what extent the court was influenced by the fact that the employee had previously left Reed Elsevier to work for another employer (not TransUnion) and ended up becoming a TransUnion employee through a bankruptcy sale of assets. Thus, the court considered whether under New York law, the no-hire agreement was (1) reasonable in time and area; (2) necessary to protect the employer’s legitimate interest; (3) not harmful to the public; and (3) not unreasonably burdensome to the employee.
Although the court found that the time restriction was unreasonable, because under the circumstances of the case, it would have prevented the employee from working for TransUnion for a period extending 31 months after his departure from Reed Elsevier, the court refused to shorten that restriction to a more reasonable period because Reed Elsevier could not prove that the agreement was necessary to protect a legitimate interest. Under New York law, a legitimate interest entitled to protection through a restrictive covenant would include (1) trade secrets; (2) confidential customer information; (3) the employer’s client base; and (4) irreparable harm where the employee’s services are unique and extraordinary. The court found that none of these interests was at stake in this case.
FedEx Ground has settled a case with the Attorney General of Massachusetts for misclassifying its delivery drivers. FedEx Ground classifies its drivers as independent contractors, instead of employees, which results in substantial cost-savings to FedEx Ground because under such an arrangement its drivers bear FedEx Ground’s overhead costs, among other things.
The United States Supreme Court recently ruled that a union could contract away a union member’s rights to pursue a statutory discrimination claim in court. In 14 Penn Plaza L.L.C. v. Pyett, the Supreme Court considered whether a union member with an age discrimination claim under the Age Discrimination Employment Act (“ADEA”) could be required to privately arbitrate the claim rather then pursue it in court. Surprisingly, a divided Supreme Court concluded that a union member could be mandated by a collective bargaining agreement (“CBA”) to arbitrate a statutory discrimination claim.
New York Governor Paterson recently signed the Broadcast Employees Freedom Work Act which restricts employers in the broadcasting industry from conditioning employment on the signing of noncompete agreements.
In Peters v. Gilead Securities Inc., the 7th Circuit sent out a warning to employers using employee handbooks, that their provisions may be held legally binding due to the contract liability theory of promissory estoppel. Specifically, the court ruled that although a company may not be subject to the Family Medical Leave Act they may still be liable if their Employee Handbook states employees are eligible for such a leave.
Many executive employment agreements provide that an executive can only be terminated “for cause.” In addition, those agreements sometimes provide that the executive can terminate the employment relationship for “good reason.” A resignation for “good reason” results in it being treated as a termination without cause by the employer. This is significant, because the employee will then be entitled to damages, i.e., whatever the employee would have received under the agreement had he or she either remained employed or terminated without cause.