A proposed amendment to New York’s labor law has the potential to change the employment game. A partner at Seyfarth Shaw weighs in.
By Zee Johnson
Last month, the New York State legislature passed a bill that would block any agreement that “prohibits” or “restricts” an employee’s post-employment activities, affecting individuals of all titles and sectors.
Currently, New York is the only purely common law state in the country that does not have statutory guidelines governing both post-employment non-compete agreements and trade secrets. But if Governor Kathy Hochul signs the bill into law, the state could soon be on its way to becoming even more restrictive than California, which has had a statutory prohibition on restrictive covenants for more than 150 years.
Robert Whitman, partner at Seyfarth Shaw LLP, says that the controversy surrounding non-competes has been brewing for some time now, mainly because they spawn many questions, especially those surrounding fairness. “Non-compete agreements are, by definition, anti-competitive. They restrain competition in the labor market,” he says. “So, even where such agreements are permitted under state law, they have been subject to close scrutiny by the courts to ensure that they are reasonable in terms of geographic scope, duration, and whether they have adequate rationale supporting them.”
One of the most cited concerns for employees when addressing the fairness of these agreements has been the possible professional hinderance that they could catalyze. “One of the arguments that’s typically made by an individual who is subject to a restraint and wants to get out is, if I’m not permitted to go work for a competitor, then I won’t be current in terms of the latest developments in my area,” Whitman says. “The argument is that the pace of development is so quick that if I’m forced to stay on the bench for a year, then I’ll lose touch with what’s current in the marketplace.”
Whitman says that next to delayed development is the luring possibility of financial woes. Depending on whether the non-compete provides compensation to the former employee during the period of non-competition or if it only provides a reduced amount of competition, he says that individuals are often plagued by questions like the following.
- Will I suffer an economic hardship?
- Will I be able to pay my mortgage?
- Will I be able to feed my family?
For these reasons, individuals typically use such contentions to try and have non-competes declared unenforceable or pared down significantly to lessen or eliminate any hardship. However, in some sectors, non-compete agreements are essential for businesses.
The legislation “authorizes the continued use of agreements protecting trade secrets and confidential and proprietary information.” For companies that would not be protected by this clause, Whitman says they must strategize effective alternatives.
“For employers that use non-compete agreements with their employees, whether they do so across the board or only for certain categories of employees, if there are laws that ban those agreements, that takes a tool out of the employer’s toolbox in terms of protecting what they perceive to be their vital interests,” he says. “Employers would need to find other ways to do that.’
For New York employers and employees, a new era could be approaching, Whitman’s advice for employers? Think long and hard about if non-compete agreements are essential to business and if so, be as impartial as possible. “These agreements are viewed probably more skeptically [now] than ever. So, if employers think they want to use them with their employees, they need to think carefully about which employees they’ll enter into such agreements with and what is the rationale,” he says. “Can the objectives be achieved through other means or other kinds of agreements and restrictions rather than an outright non-competition covenant?”