Employment Law Blog Archives - Ottinger Employment Law

Non-Compete Agreements in New York

Jul 20, 2020 | By Ottinger Employment Lawyers | Read Time: 13 minutes

Important Information About Non-Compete Agreements in New York New York non-compete agreements are widely misunderstood and many of them are unenforceable. This is because New York strongly disfavors non-compete agreements and courts will not enforce them unless a company can overcome a presumption of unenforceability. New York non-competition law attempts to strike a balance to protect an employer’s legitimate business interests, an employee’s ability to earn a living, and the public interest in free trade. Speak with an Employment Attorney About Your Non-Compete Agreement If you are looking for immediate help with a non-compete issue complete the short form below to get started on your consultation. We review your non-compete agreement and then meet with you over the phone. We will assess the agreement’s enforceability and suggest strategies. Call 347-492-1904 to speak with Robert Ottinger if you have questions regarding your non-compete agreement in New York. Locked into a Non-Compete in NY? Here are Five Ways Your Can Potentially Defeat Your New York Non-Compete Agreement Are you bound by a New York non-compete agreement? Are you trying to move from one employer to another in the same industry? A non-compete agreement can ruin your plans. The Ultimate Guide for Executives This article provides a brief overview of tactics that can beat a non-compete agreement. If a non-compete agreement is causing problems for you, it may be possible to invalidate it or reduce its impact. We offer a non compete review & consultation to help you understand your options. First, a little background on New York non-compete agreements. These agreements were once limited to high-level company executives who had access to company trade secrets or who developed unique skills while employed by the company. Over the past decade, however, companies have started asking rank and file employees to sign non-compete agreements. As a result, employees at all levels find themselves constrained by these agreements. It’s estimated that one in five people today are bound by a non-compete clause. The overuse and abuse of non-compete agreements are also creating a backlash against them. Last year, New York Attorney General Eric Schneiderman prosecuted three companies for abusing non-compete agreements. According to the Attorney General, “unless an individual has highly unique skills or access to trade secrets, non-compete clauses have no place in a worker’s employment contract.” The tide has turned against non-compete agreements in New York. Courts are now more likely than ever to void these agreements. New York Non Compete Issue? Get a consultation with Ottinger Employment Lawyers. What is a Non-Compete Agreement? A non-compete agreement is a clause typically inserted into an employment or separation agreement that prohibits a person from working for a competitor of their employer for a period of time. A non-compete agreement is a contract between a company and an employee that prevents the employee from working for a competing business during, and after, the term of employment. These clauses are typically inserted in employment agreements along with other restrictions such as non-solicitation agreements and trade secret obligations. A non-compete agreement can limit your ability to move around in your industry. By signing one, you effectively agree that if you stop working for your employer, you will leave your industry and abandon your skills and experience for a period of time that typically ranges from six months to two years. New York non-compete agreements are widely misunderstood and many of them are unenforceable. This is because New York strongly disfavors non-compete agreements and courts will not enforce them unless a company can overcome a presumption of unenforceability. In the case of Purchasing Associates, Inc. v. Weitz, 13 NY2d 267, 271, (1963) the court held that “public policy considerations militate against sanctioning the loss of a person’s livelihood through enforcement of [non-compete agreements].” A company seeking to enforce a non-compete agreement against an employee faces an uphill battle. New York non-competition law attempts to strike a balance to protect an employer’s legitimate business interests, an employee’s ability to earn a living, and the public interest in free trade. This law has developed over centuries and the modern version is based on a three-part test to determine if the restraint is reasonable. A non-compete agreement is considered reasonable only if it: (1) “is no greater than required for the protection of the legitimate interest of the employer, (2) does not impose an undue hardship on the employee, and (3) is not injurious to the public.” BDO Seidman v Hirshberg (1999). A violation of any one of the three factors renders a non-compete agreement invalid. Courts are cautioned to enforce non-compete agreements only to “the extent that it is reasonable in time and area, necessary to protect an employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.” What does all of this mean for an executive bound by a non-compete agreement? It means that courts will not enforce the agreement against you unless it is clear that your former employer’s interests will be harmed if you are permitted to work for a competitor. See Chapter 2 below for an explanation. Here is a typical non-compete agreement: “Employee shall not, whether directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business anywhere in the United States, except on behalf of the Company or with the company’s written consent: (a) engage in the Business of the Company or in any business that is in competition with the Business of the Company; (b) be employed by, consult for or provide any services to any person or entity that is engaged in the Business of the Company or is engaged in any business that is in competition with the Business of the Company; (c) solicit or accept the same or substantially related business of any customer or account of the Company or induce any customer or account of the Company to cease doing business with the Company or in any manner […]

Employment Law Blog

103 Laws Protecting California Employees

Jun 17, 2020 | By Ottinger Employment Lawyers | Read Time: 13 minutes

If you want to find a comprehensive list of laws protecting California employees, then this post is the place for you! Below you will find 103 laws that offer legal protection to employees working in California. If you are looking for a specific type of employment law, you can click on the categories listed below to jump to that section. Check it out! Wage and Hour Minimum Wage and Overtime IWC Order MW-2019: As of January 1, 2020, employers with 26 or more employees must pay their California employees $13 per hour. Additionally, employers with 25 or fewer employees must pay their California employees $12 per hour. Cal. Labor Code Section 510: Non-exempt employees must receive overtime for eight or more hours worked in a single day. Also, employers owe overtime for more than 40 hours worked in a workweek. Employers must pay double time for hours worked in excess of 12 in a day or eight on the seventh day of any workweek. Cal. Labor Code Section 1194: Any employee who is receiving less than the legal minimum or overtime wage can file a lawsuit. This lawsuit can be for unpaid wages, interest, and attorney’s fees. San Francisco Administrative Code, Section 12R (For San Francisco Employees): Any employee who performs two or more hours of work in a week for an employer in San Francisco is entitled to San Francisco’s specified minimum wage. As of July 1, 2020, this minimum wage will be $16.07. Meal and Rest Breaks Cal. Labor Code section 226.7: Non-exempt employees must receive rest breaks of at least 10 minutes for every four hours of work. If rest breaks are not provided, then an employer must pay the employee one hour of pay for each day that the rest break was not offered. Cal. Labor Code Section 512: Non-exempt employees that work more than six hours in a day must receive a meal period by the fifth hour. Additionally, this meal period must be at least 30 minutes long. Along with this, employers must offer additional meal periods for employees who work over 10 hours. Record-keeping Cal. Labor Code Section 1198.5: Any current or former California employee, with limited exceptions, has the right to receive a copy of his or her personnel records. 29 CFR Section 516.2: All employers must maintain accurate payroll records for their employees. For instance, these records must contain the employee’s rate of pay, hours worked, overtime hours, and deductions. Cal. Labor Code Section 226: An employer must provide employees with accurate and itemized wage statements. Cal. Labor Code Section 353: An employer must keep accurate records of all tips received. Cal. Labor Code Section 1174: Employers must keep an employee’s payroll records on file for no less than three years. Along with other information, these records must include the ages of any minors who worked for the employer. Los Angeles Ordinance No. 184320, section 188.03(B) (For Los Angeles Employees): Employers within the city of Los Angeles must maintain payroll records for four years. Cal. Labor Code Section 432.3: Employers cannot ask prospective employees for salary history. Employers must also offer prospective employees with pay scale information upon request. Wages Cal. Labor Code Section 2802: Employees are entitled to reimbursement of any necessary business-related expenses that they make. As a result, employers cannot pass operational costs onto their employees. Cal. Labor Code Section 201: Employers must pay wages immediately to an employee who is discharged. Cal. Labor Code Section 202: Employees who quit are owed wages within 72 hours after quitting. If the employee gave 72 hours’ notice of quitting, then the employer must pay the wages at the time that the employee quits. Cal. Labor Code Section 203: Employers must pay employees wages owed when their job ends. If they do not, the employee is entitled to payment for each day he or she is not paid owed wages. Additionally, this penalty continues for a maximum of 30 days, unless payment is submitted or legal actions commence. Cal. Labor Code Section 204: California employees, with some exceptions, must be paid at least twice a month. Also, employers must establish a regular payday for their employees. Cal. Labor Code Section 231: If an employer requires an employee to have a driver’s license for the job, then the employee must pay for any medical exams associated with obtaining that license. However, this does not apply to medical exams taken prior to the employee’s application. Cal. Labor Code Section 232(a): An employer cannot prevent an employee from disclosing the amount of his or her wages. Cal. Labor Code Section 351: Generally, an employer cannot withhold or take a portion of an employee’s tips. Cal. Labor Code Section 2800: An employer must compensate an employee for losses incurred due to the employer’s “want of ordinary care.” So, employers must take reasonable precautions to prevent an employee’s losses. Discrimination and Harassment General Protections Title VII of Civil Rights Act of 1964: This federal law makes it illegal for an employer to discriminate on the basis of race, color, national origin, sex, and/or religion. Cal. Gov. Code Section 12940(a): This law, also known as FEHA, offers protections from discrimination to certain classes of employees. Among these classes are race, religion, sexual orientation, physical or mental disability, gender identity, age, and veteran status. Cal. Gov. Code section 12940(j): An employer cannot harass an employee, applicant, or intern because the employee is a member of any of the protected classes in Section 12940(a). Cal. Gov. Code Section 12990: This law applies to workers contracted by the state for public work. These workers cannot be discriminated against for any of the protected classes listed in FEHA. Cal. Labor Code Section 1735: A contractor for public works projects cannot discriminate employment of people to work on public works on any basis listed in FEHA. Hiring and Firing Cal. Labor Code Section 432.7(a): An employer cannot use any record of arrest or detention that did not result in a conviction for […]

Employment Law Blog

Defeating a Non-Compete Agreement

Jun 9, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

In this post, I’m going to show you EXACTLY how to get out of a New York non-compete agreement. In fact, this is the exact process we use to help all of our clients get out of non-compete agreements. If you want to get out of a New York non-compete agreement, you’ll like this post. The graphic above makes it easy to see how this works. You can also visit FindLaw to learn more about non-compete agreements in detail. Let’s dive right in …. 1. Fired Without Cause Were you fired without cause? If you were fired without cause, you most likely have nothing to worry about. Courts in New York generally will not enforce a non-compete against you in this situation because it’s so unfair. If your employer is not willing to employ you, then it cannot prevent you from working within your field. It’s just that simple. Also, most firings are without cause. Cause only exists if you do something seriously wrong like commit a major crime, steal from your employer or do something intentionally harmful to the company. If you were not fired, then go to steps 2 & 3 below. 2. Company Trade Secrets New York courts will not enforce a non-compete agreement against an employee unless the company has a legitimate interest to protect. In almost every case, the only possible legitimate interests are trade secrets. Therefore, your non-compete agreement is probably unenforceable unless you have access to your employer’s trade secrets. Most people do not have access to trade secrets. For example, at the Coca Cola company, their trade secrets are the formulas for coke and other drinks, and they are closely guarded secrets. If you do have access to trade secrets or confidential information, then go to step 4 below. 3. Unique Skillset Do you have unique or extraordinary skills? This step only covers doctors, famous singers, actors & athletes and nationally renowned experts. Very few people have to worry about this. Unless you are one of them, your non-compete will not be enforced. 4. Reasonable Geographic Scope Is the non-compete agreement reasonable in time and geographic scope? This step only applies if you answered yes to step 2 or 3 above. Generally, a non-compete will be deemed reasonable if the restriction is limited to a year or less but that can vary. An agreement is reasonable in geographic scope if it covers the company’s service area or market. For example, if you are a doctor who works for a medical practice that serves Brooklyn, then the non-compete should only cover Brooklyn. Or if you work for Google, most of their products have global reach so a non-compete with Google could cover the globe. Summing it Up Those are the four steps. If you answered yes to the first step or no to steps two and three, then your non-compete is unenforceable. These rules only apply to New York cases because other states have different rules. If you need help with a non-compete agreement or want to learn more about New York Non- Compete Core Concepts, please contact us.

Wages & Hours

Zoom and the Inside Sales Exemption

Apr 26, 2020 | By Ottinger Employment Lawyers | Read Time: 4 minutes

The Coronavirus pandemic is forcing rapid change on the way we work and some of those changes might stick. Zoom meetings, for example, are replacing business trips while travel is restricted. But will the convenience and efficiency of online meetings reduce business travel once the restrictions are lifted? Why travel to see prospects when you can meet them online for a fraction of the cost? If this becomes a lasting change in business behavior, it could have serious legal implications for sales teams. The Distinction Between Inside and Outside Sales in California In California, there is an important legal difference between inside and outside salespeople. Inside salespeople have more rights than outside salespeople. Namely, inside salespeople are entitled to meal and rest breaks and, in some cases, overtime pay. Outside salespeople, on the other hand, are not entitled to breaks or overtime pay. Companies are required to properly classify salespeople so they know who is entitled to and breaks and overtime. Misclassification of salespeople can be costly because there are steep penalties for missing breaks and failing to pay overtime As sales teams reduce travel, they may need to be reclassified from outside sales to inside sales. This is because the classification system is based on travel frequency. The defining characteristic of an outside salesperson is travel. Those who spend more than 50% of their time traveling outside of the office are classified as outside sales. Those who don’t travel much and spend most of their time working from the office are inside sales. If salespeople conduct more business online and travel less, their classification can change from outside sales to inside. Contact Us Schedule your free consultation. Inside Salespeople are Always Entitled to Meal & Rest Breaks All inside salespeople are always entitled to meal and rest breaks. There are no exceptions. When rest breaks and meal periods are not provided as required, employees may recover penalty payments from employers of up to two hours of play per day for missed meal periods and rest breaks (one hour for each missed break). United Parcel Service, Inc. v. Superior Court of Los Angeles County, 192 Cal.App.4th 1043 (2011). Outside salespeople are not entitled to meal and rest breaks. Inside Salespeople and Overtime Pay Inside salespeople are also entitled to overtime pay. But the right to overtime pay is a moving target and difficult to track. As explained below, a salesperson’s right to overtime pay can vary each quarter and each pay period. Here is the rule: inside salespeople are entitled to overtime pay, unless more than half of their pay comes from commissions and their earnings exceed one and one-half times the minimum wage. Each part of this rule is discussed below. The 50% Commission Rule Applies Quarterly As explained above, a salesperson is entitled to overtime pay unless commissions make up 50% or more of their total compensation. This rule is not applied annually. Instead, it must be measured during the “representative period.” Since most sales organizations operate on a quarterly cycle, the period is typically a quarter. Therefore, a salesperson’s total compensation must be measured each quarter. If commissions make up less than half of their total compensation for the quarter, the salesperson is entitled to overtime pay. A salesperson’s right to overtime pay can vary quarter to quarter. During a good quarter with high commissions, a salesperson might not be entitled to overtime. But during a slower quarter, they might be entitled to overtime pay. The Minimum Wage Test Must be Calculated each Pay Period A salesperson must be paid overtime for each pay period that their total earnings do not exceed 1.5 times the minimum wage. This is true even if commissions account for more than 50% of their compensation. And, in California, commission payments cannot be carried over to other pay periods. Each pay period is analyzed separately and the right to overtime pay can vary each pay period. As a result, employers must essentially run the overtime exemption test anew for each pay period to determine whether or not a particular employee is overtime-eligible or -exempt, based on the earnings for that pay period. Employers must also maintain diligent, accurate timekeeping records for any insides sales employees for whom they wish to claim the California overtime exemption. Anytime requirements for the exemption are not met in a workweek, the employer must ensure the employee is paid appropriately for any overtime worked. Failure by employers to properly classify inside salespeople can also have other costly repercussions. For example, there are requirements for employers to pay all overtime due prior to an employee’s last day of employment. Failure to do so can result in “waiting time penalties” if the failure is willful. Employers must also itemize paystubs for non-exempt employees, showing the number of hours worked by the employee during the pay period. California Labor Code §226(a). If an employer has misclassified an inside salesperson as exempt when they shouldn’t have, they may also have failed to properly itemize the employee’s hours on their pay stub. Employees who have been misclassified by an employer may also recover attorney’s fees in many cases. The Impact of More Zoom Meetings and Less Travel As you can see, a company is required to treat inside salespeople much differently than outside salespeople. It’s very possible that thousands of outside salespeople are now actually inside salespeople. If they are conducting meetings online instead of traveling, they might be entitled to meal and rest breaks and overtime pay. But companies are just trying to survive the pandemic and possibly unaware that their sales teams now are entitled to breaks and overtime pay. A wave of Zoom misclassification lawsuits may be on the horizon.

Employment Law Blog

Federal Ban on Non-compete Agreements—Is It Possible?

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

Non-compete agreements have the attention of congress. A bipartisan effort to regulate non-compete agreements on a federal level was introduced in the U.S. Senate in October 2019 by Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.). Senate Bill 2614, the Workforce Mobility Act of 2019, proposes a near federal ban of all employee non-compete agreements, with limited exceptions for certain business transactions. The bill would have sweeping implications, but does it have any chance of becoming law? Workforce Mobility Act Would Limit Noncompete Agreements The Workforce Mobility Act (WMA) defines a “non-compete” agreement as any agreement between “a person and an individual performing work for the person” that restricts the individual, after the termination of the working relationship, from doing the following: Working for another person for a period of time. Working in a specified geographic area. Working for another person similar to the individual’s work for the company. The WMA generally prohibits the use of non-compete agreements, except in limited instances. The bill permits noncompete agreements in connection with the sale of a business, as part of the dissolution of a partnership (or buyout of a person’s partnership interest), or as part of a severance agreement with senior executives as part of the sale of a business (but the agreement is limited to 12 months and the employee must receive 12 months’ severance pay). The WMA does not expressly prohibit non-solicitation agreements or non-disclosure agreements. Still, the definition of a “noncompete agreement” leaves open the possibility that these agreements may also be restricted. The bill does not prohibit agreements that prevent employees from sharing trade secrets. The Federal Trade Commission and the Department of Labor would be responsible for enforcing the WMA. The bill does allow workers to file suits for violations of the WMA. How the WMA Impacts Employees Non-compete agreements limit employee mobility, stifle wage growth and innovation, and prevent true competition. An estimated 40 percent of American workers have been subject to a non-compete agreement at some point in their careers. Given the growing use of these agreements in today’s workforce, even with employees in low-paying jobs, the harm imposed on the economy and workers has not gone unnoticed. A prohibition on non-compete agreements would force companies to find a new way to protect their company’s legitimate interests without impeding a person’s ability to change jobs and earn higher wages. Passage of the WMA would also provide a uniform standard, which would ease the current discrepancies between states. Does the Workforce Mobility Act Have a Chance? The WMA is not the first attempt by legislators to regulate the use of non-compete agreements. Similar federal efforts failed in 2018 and January 2019, and many states have proposed or enacted legislation to limit the use of non–compete agreements. While the WMA received praise from many, its future seems uncertain, and some critics argue that safeguards against employer abuse of non-compete agreements already exist in the court system and that the bill goes too far. A hearing was held in November 2019, but there has been no movement since that time. While passage of the bill may be unlikely, it has again brought the issue of abuse of non-competes to the forefront and may be a good step towards negotiating a compromise bill. The Ottinger Employment Attorneys have drafted, reviewed, and negotiated non-compete agreements for over 20 years. Non-compete agreements can ruin your future career prospects, so it is critical that you carefully review and consider the long-term implications of these agreements. If you are contemplating entering into a non-compete agreement or fighting enforcement of an agreement, contact us today. Click here for more about non-compete agreements in New York.

Employment Law Blog

Non-Solicitation Agreements: Announcing Your Change of Firms without Getting Sued

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

Recently, an Indiana federal district court tackled the issue of whether a former employee’s change in employment announcement to clients constitutes solicitation. In Edward D. Jones & Co., L.P. v. Kerr, No. 1:19-cv-03810-SEB-DML (S.D. Ind., Nov. 14, 2019), the court concluded the announcement was not a solicitation and, for those looking to enforce or defend against non-solicitation agreements, this decision provides helpful insight into behaviors that may cross the line from notification to solicitation. Background Mr. Kerr was a Financial Advisor for Edward Jones, serving as the sole advisor in the Westfield, Indiana branch for twenty years. At the outset of his employment, Kerr executed an employment agreement (“Agreement”) requiring, among other things, the return of account records and customer files upon termination or resignation, and a one-year prohibition on soliciting the employer’s clients. Kerr resigned his position during a meeting on August 1, 2019; however, the parties offer drastically different versions of how the resignation came about. Kerr claims that he printed confidential client reports in preparation for the meeting and destroyed them thereafter; Edward Jones contends Kerr printed the reports because he knew he would be terminated, and he used the reports to solicit clients. On August 2, 2019, Kerr began working at a different firm. Over the next few days, he contacted his former clients to announce his transition. Around that same time, Edward Jones also notified Kerr’s clients of the transition through letters and telephone calls. Edwards Jones filed suit to enforce the Agreement and requested a temporary restraining order; Kerr did not challenge the validity of the Agreement but argued that his actions were not “indirect solicitations.” The court limited its review to the alleged breach of the non-solicitation provision of the Agreement. Transition Announcement Does Not Constitute Indirect Solicitation Ultimately, the court denied Edwards Jones’ request for a TRO. Relying on the below case-specific facts and Kerr’s intent, the court concluded Kerr’s announcement was not a solicitation. Content of the notification. During the notifications, Kerr did not provide information about his new firm unless clients initiated the discussion or explicitly requested more information. In fact, some clients first learned of the transition from phone calls by Edward Jones’ employees, not Kerr. Origination of alleged solicited clients. Approximately 70 percent of clients that followed Kerr to his new firm had personal relationships with Kerr that predated his employment with Edward Jones. Employer’s protocol for new employees transitioning from other firms. Edward Jones’ protocol requires new employees to contact their former clients to inform them of their new affiliation and provide their new contact information. The court found this very persuasive and acknowledged such an announcement may be consistent with industry practices as evidenced by the employer’s policies. Extent of the former employee’s contacts with clients after the initial departure notification. Kerr made no contact with the former clients after the initial notification. The Kerr court notes that many courts reject the theory that an announcement like Kerr’s constitutes a solicitation, even when an employment agreement prohibits direct or indirect solicitation; however, transitioning employees should approach any client notifications with caution. Takeaways Financial advisors have a fiduciary duty to inform clients of a change in employment, but they must ensure that any notification does not cross the line into solicitation because non-solicitation provisions are enforceable. If you have questions regarding a non-compete or non-solicitation agreement, contact the Ottinger Firm for a free Review & Consultation. With offices in New York and California, our skilled employment attorneys will examine your agreement and meet with you to review and discuss your options. We have litigated non-compete and non-solicitation agreements in federal and state court and mediated, arbitrated and negotiated hundreds of disputes. Contact us today at (415) 325-2088 (San Francisco), (213) 377-5717 (Los Angeles), or (347) 305-5294 (New York).

Employment Law Blog

Study Finds that Non-Compete Agreements are Bad for Employees and the Economy

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 4 minutes

A recent report released by the Economic Policy Institute (“EPI”) is arguing in favor of prohibiting noncompete agreements after concluding that the increasing use of noncompete agreements may be contributing to rising wage inequality, stagnant wages, and decreasing job mobility. Relying on data from a national survey of private-sector businesses, EPI found that almost half of responding establishments required at least some of their employees to sign noncompete agreements. Should noncompete agreements be prohibited? Do they stifle competition? EPI certainly makes a strong argument, showing just how dangerous noncompetes can be for workers and the entire American workforce. The Growing Use and Abuse of Non-Compete Agreements Noncompete agreements are commonly found in employment agreements or as free-standing agreements, prohibit an employee from working for a competing business or starting their own competing business within a prescribed timeframe and within a specified geographical area. While their use was formerly limited to executives and other highly paid employees, the use of noncompete agreements has spread into all industries and to all levels of employees, including minimum wage employees and those working entry-level jobs. As a result of employer overreach, some states have made significant efforts to eliminate or limit the enforceability of noncompete agreements. Labor Market Trends EPI began its report by highlighting two main trends in recent decades: (1) rising inequality and stagnant wages among all but highly paid employees; and (2) the decline in job mobility and other measures of labor market fluidity. While many factors influence these trends, evidence suggests that the increasing use of noncompete agreements may be part of the problem. In terms of wage growth, workers often change jobs for a pay increase; when noncompete agreements limit mobility and competition, wages remain unchanged. Since noncompetes prohibit a worker from starting their own business or taking another job, there is a decline in dynamism in the national labor market. In fact, EPI noted that enforceability of noncompetes reduces the formation of new firms by 12% and is associated with an 11% increase in the length of time a worker remains at their job. Indeed, noncompete agreements are inhibiting workers’ individual growth and impeding competition between organizations. Key Findings about Non-Compete Agreements The EPI study made several notable findings that supported its conclusion and argument for the prohibition of noncompete agreements. Almost half of businesses use noncompete agreements. Specifically, 49.4% of establishments reported that at least some of their employees were required to sign noncompetes; 31.8% of organizations indicated that all employees were required to enter into noncompetes (regardless of wages or duties). Based on the available data, EPI was able to estimate that 27.8% to 46.5% of private-sector workers are subject to noncompete agreements. Based on the assumption that there are 129.3 million people in the private-sector workforce, that means between 36 million and 60 million private-sector workers are subject to noncompetes. Mid-sized organizations are more likely to have all employees sign noncompete agreements. Establishments with 50 to 100 employees are less likely to use noncompete agreements than organizations with 100 or more employees. However, while larger organizations (1000 or more employees) are more likely to have legal counsel and sophisticated HR policies, mid-sized organizations (100–499 employees) are more likely to require all employees to sign noncompetes than both smaller and larger organizations. In the 12 largest states, 40% of establishments have at least some employees sign noncompete agreements. The EPI study reviewed the use of noncompete agreements in the 12 largest states (including California and New York) and found that 40% of organizations in these states use noncompete agreements with at least some of their employees. Shockingly, 45.1% of California establishments subject some of their employees to noncompete agreements even though noncompete agreements are unenforceable in that state. Why would California employers do this? They are relying on the fact that workers rarely challenge these agreements in court. The EPI study notes that employees’ fears of being sued and pressure from employers causes workers to stay in positions regardless of whether the noncompete agreement is enforceable. This lack of mobility leads to lower or stagnant wages, and it stifles creativity and the development of new companies, products, and ideas. Significant use of noncompete agreements in business services and wholesale trades. Seventy percent of business services and wholesale trade organizations use noncompete agreements. These agreements are used less in transportation, education, health services, and leisure and hospitality establishments. Noncompete agreements used more frequently at higher-wage workplaces. While noncompete agreements are used more with higher-wage workplaces than lower-wage workplaces, 29% of establishments where the average wage is less than $13.00 use noncompete agreements for all workers. Many opponents of noncompete agreements take issue with the use of noncompetes on lower wage earners arguing, in part, that organizations are not protecting legitimate business interests by limiting employment options for entry-level and lower-wage employees. Higher use of noncompete agreements with employees with higher education levels. Noncompete agreements are used more frequently with workers with higher education levels, especially in organizations where employees usually have a four-year college degree or higher. In addition, 45% of establishments where the typical education level is a college degree or higher used noncompete agreements for all employees. Lastly, in 27.1% of organizations where the typical employee has only a high school diploma, noncompetes are used for all workers. Employers requiring mandatory arbitration are more likely to use noncompete agreements. More than half (53.9%) of establishments have mandatory arbitration procedures. EPI concluded that employers using mandatory arbitration are more likely to use noncompete agreements. Advocating to Ban or Limit Non-Compete Agreements In 2019, the Workforce Mobility Act of 2019 [hyperlink to blog post on this Act] was introduced in the United States Senate, which would prohibit the use of noncompete agreements on a federal level; this bill is unlikely to pass. Regardless, many states have enacted their own legislation to address abuses of noncompete agreements, but this can be confusing and cumbersome for employers working in multiple states. In addition to legislation, the EPI suggested the Federal Trade Commission […]

Non Compete Agreements

The “Choice of Law” in Non-Compete Disputes

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

The “choice of law” in a non-compete dispute can impact the outcome of the case. New York, Massachusetts, and California, for example, have highly developed laws that favor employee mobility. Other states might be more inclined to enforce a non-compete agreement according to its terms. Therefore the question of which law applies can be determinative. Employers often try to avoid the employee friend laws of states like California by inserting a “choice of law” provision in the agreement. This happened to Patrick Miles who served as Vice Chairman of the Board of NuVasive, Inc., a medical device company based in San Diego and incorporated in Delaware. Even though NuVasive was based in California, Mr. Miles’s non-compete agreement provided that Delaware law would apply. Mr. Miles left NuVasive in October 2017 and joined a competitor. NuVasive sued Mr. Miles in Delaware and the question in the case, as eventually posed by the court, was whether the choice of law provision was included for the purpose of “importing [Delaware’s] well-developed body of commercial law” into the agreement or “as an attempt to contract around a fundamental public policy” of California against restraints on trade in the form of non-compete and non-solicitation clauses in the employment contract. NuVasive, Inc. v. Miles (Del. Ch. Ct. August 26, 2019). The court noted that Delaware generally respects parties’ choice of law provisions in contracts disputes. However, because Delaware follows the Restatement (Second) of Conflicts of Law, the existence of a Delaware choice of law clause does not portend the end of the story. Rather, Delaware will adopt and apply another jurisdiction’s law when the following test is satisfied: The other jurisdiction’s law would apply absent the contractual choice of Delaware law, Failure to apply the other jurisdiction’s law would frustrate a fundamental policy of the other jurisdiction, and The other jurisdiction’s interest materially outweighs Delaware’s interest in the matter. The court concluded that California law would apply since it was the state with the “strongest contacts to the contract.” The court further found, consistent with its prior decision in Ascension Insurance Holdings, LLC v. Underwood (Del. Ch. Jan. 28, 2015) and citing California Business and Professions Code section 16600, that non-compete provisions are fundamentally against California policy. The only exception – for a non-compete covenant in connection with the sale of a business – that California makes to its section 16600 prohibition against contracts in restraint of trade is also set forth in the statute. The court noted that since its Ascension decision, California had added, in 2016, a new section to its labor code that only served to strengthen its already strong statement of public policy against non-competes. This law provided that: An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) Require the employee to adjudicate outside of California a claim arising in California. (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California. Under this section of the California Labor Code, any provision of a contract that violates the above provision is voidable by the employee unless the employee has legal representation during negotiation of the forum or choice of law clause. In Ascension, the Delaware court had held that “California’s specific interest [in its public policy against restraints of trade] is materially greater than Delaware’s general interest in the sanctity of a contract that has no relationship” to Delaware. Similarly, the NuVasive court held in favor of Miles, concluding, for the non-solicitation clauses as well as the non-compete covenants, that California’s public policy was “sufficiently strong that it must not be ‘diluted by judicial fiat,’” and, therefore, substantially outweighed Delaware’s general interest in freedom of contract. The lesson here is that the choice of law provision in a non-compete agreement should be ignored in these situations. The law of the state with the greater interest typically should apply and that is the state where the executive works. If the executive works in New York, for example, then New York law should apply.

Non Compete Agreements

New York Non-Compete: The Legitimate Interests Test

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 6 minutes

Decided almost a half century ago, Reed, Roberts Assoc. v Strauman, 40 N.Y.2d 303 (N.Y. 1976), remains a pillar of New York case law when determining if a non-compete is enforceable. With this decision, New York State’s highest court established a framework for determining whether a non-compete (or any other restrictive covenant) is “reasonable” and, therefore, enforceable. Background In this case, the employer, Reed, Roberts Associates, Inc. (“Reed Roberts” and, sometimes, “the company”), provided advice and guidance to employers with respect to their obligations under New York State unemployment laws. The company’s expertise also extended to advising their clients in the areas of worker’s compensation, disability benefits, and pension plans. By 1976, Reed Roberts boasted over 6,000 customers, 21 offices nationwide, and gross sales of almost $4 million. In 1962, Reed Roberts hired John Strauman. As part of his employment contract, Mr. Strauman agreed to two restrictive covenants: a non-solicitation covenant and a non-compete covenant. The non-solicitation covenant provided that Mr. Strauman would never solicit any of Reed Roberts’ clients. The non-compete provided that Mr. Strauman would not, for a period of three years from the date of his termination of employment, engage in or have an interest in any business of the same type as Reed Roberts, provided such business was located within the City of New York or the counties of Nassau, Suffolk and Westchester. During his 11-year tenure with Reed Roberts, Mr. Strauman became a valuable employee and received three promotions, eventually rising to the position of senior vice-president in charge of operations. A key employee, Mr. Strauman was both responsible for formulating company policy and instrumental in devising most of the forms utilized by the company in rendering its services and in setting up its computer system. “Importantly, however, he was not responsible for sales or obtaining new customers.” Reed, Roberts Assoc. v Strauman, 40 N.Y.2d 303 (N.Y. 1976) p. 306. In 1973, Mr. Strauman left Reed Roberts and started his own company, Curator Associates, in direct competition with his former employer. Curator Associates was located in the same municipality as Reed Roberts, a geographical area specifically covered by the non-compete covenant that Mr. Strauman had signed in 1962. Reed Roberts brought a lawsuit against John Strauman and Curator Associates alleging that Strauman had been soliciting their customers and requesting that the court enforce the non-compete and non-solicitation covenants. Specifically, Reed Roberts requested relief via a court-issued injunction prohibiting Mr. Strauman and Curator Associates from (a) engaging in the business of unemployment tax control within the New York City metropolitan area for a period of three years, and (b) soliciting any of Reed Roberts’ customers permanently. Rules for Evaluating Restrictive Covenants Under New York State law, generally, restrictive covenants such as non-compete and non-solicitation provisions are enforceable only to the extent that they are reasonable. Whether or not a provision is determined to be “reasonable” differs based on context. In Reed, Roberts Assoc. v Strauman, the New York Court of Appeals outlined a framework for determining whether a restrictive covenant is “reasonable” (and therefore enforceable) under New York law. Reasonableness Framework for Restrictive Covenants In the employment context, restrictive covenants (such as non-competes) will only be considered reasonable and therefore enforceable to the extent that such provisions are: reasonable in time and geographic area; necessary to protect the employer’s legitimate interests; not harmful to the general public; and not unreasonably burdensome to the employee. In addition to considering the above framework for determining reasonableness, New York courts are more inclined to find that a restrictive covenant is reasonable if the facts show that there has been a conspiracy or breach of trust by the employee that results in commercial piracy. When is a Non-Compete Necessary to Protect an Employer’s “Legitimate Interests”? Focusing on the second prong of the reasonableness framework described above, the New York Court of Appeals set forth the following two-part test for determining whether a restrictive covenant (such as a non-compete) is necessary to protect an employer’s legitimate interest. A restrictive covenant is necessary to protect an employer’s legitimate interests and enforceable on such grounds only: to the extent necessary to prevent the disclosure or use of an employer’s trade secrets or confidential customer information; or where an employee’s services are unique or extraordinary. When is a Non-Compete Not “Unreasonably Burdensome” to the Employee? Focusing on the fourth prong of the reasonableness framework, the New York Court of Appeals shed some light on when a non-compete might be considered unreasonably burdensome to the employee. According to the court, a restrictive covenant is unreasonably burdensome to an employee when it restrains the employee’s right to apply, to their best advantage, the skills and knowledge (including those techniques which are skillful variations of general processes known to the particular trade) acquired by the overall experience of any previous employment.Id.at p. 307. The Reed court also noted an exception for members of “the learned professions.” The Court explained that a restrictive covenant might not be unreasonably burdensome to such an employee, provided that the restrictive covenant is reasonable and such employee’s services are unique or extraordinary. Procedural History On the first issue, the trial court ruled against Reed Roberts, refusing to grant an injunction that would enforce the non-compete and prohibit Mr. Strauman and Curator Associates from engaging in its business. The trial court explained that an injunction was not appropriate because (a) there were no trade secrets involved and (b) Mr. Strauman’s services were not so unique or extraordinary (even though he was considered a “key employee”), and therefore the non-compete agreement was not reasonable and was therefore not enforceable. On the second issue, the trial court ruled in favor of Reed Roberts, granting an injunction to permanently prohibit Mr. Strauman and Curator Associates from soliciting Reed Roberts’ clients. The trial court reasoned that it would be unjust and unfair for Mr. Strauman to utilize his knowledge of Reed Roberts’ internal operations to solicit its clients. Upon appeal, the New York State Appellate Division affirmed the trial court’s decision on both issues. The decision was […]

Employment Law Blog

Trade Secrets: What Companies Must do to Protect them

Apr 1, 2020 | By Ottinger Employment Lawyers | Read Time: 3 minutes

A trade secret is, essentially, information of commercial value that is kept secret by those who have an interest in protecting and benefitting from its value. The attribute of secrecy is fundamental to whether certain information qualifies as a trade secret. Unless the entity possessing the information makes a reasonable effort to maintain the secrecy of the information, the information will not be deemed a trade secret and will not receive legal protection as such. The decision in the case of Abrasic 90 illustrates just how vital protecting secrecy is. Abrasic 90 v. Weldcote Metals, No. 18-C-5376 (N.D.Ill. Mar. 4, 2019). In that case, the court held that plaintiff Abrasic 90 could not show an adequate likelihood of success on the merits of its claims to warrant enjoining defendants, including plaintiff’s former CEO and his subsequent employer, Weldcote Metals, from operating in the abrasives industry and using Abrasic 90’s purported trade secrets to do so. Central to the court’s holding was its finding that, although some of the information taken by the defendants was of such a nature that its compilation might be protectable as a trade secret, Abrasic 90 “did virtually nothing to protect that information to preserve its status as a trade secret.” The company’s “data security was so lacking” the court had difficulty identifying “the most significant shortcoming.” The court nevertheless lists those shortcomings, which included: Failure to enter into any nondisclosure or confidentiality agreements with employees, distributors, or suppliers. The nonexistence of any policy around the confidentiality of its business information. Failure to train employees or otherwise instruct them regarding their obligations to keep certain categories of information confidential. Allowing the defendant CEO’s employment agreement, with its nondisclosure and noncompete provisions, to expire five years prior to his departure. Failure to ensure any confidential information was returned when employment relationships ended. Failure to ask former employees to delete secret business information from personal devices. Use of a shared network drive, accessible via a shared password, with no encryption and no restrictions on anyone’s ability to access, save, copy, print or email anything kept on the shared drive. Rejection by the company of its IT manager’s recommendation that the company segregate certain documents, allow access only on a need-to-know basis and adopt an “Acceptable Device Use Policy.” Generally, doing nothing to protect trade secrets that was, in any way, different than steps taken to protect information that was “indisputably not a trade secret.” The lessons are clear for any entity that wants to claim trade secret status for certain information. Steps to protect such information must include: Identification, labeling, and segregation of the secret information. When secret business information is unidentified and freely intermingled with non-confidential information, it undermines any otherwise reasonable measures to protect that information. Physically and electronically securing the information. Physical security means that hard copies of secret business information is kept in locked file cabinets, rooms or other areas of restricted access. Access to and use of electronic information must also be controlled. The information must not be made freely available on shared drives. Rather, access must be restricted to those who have a “need-to-know” the information. This may be done through encryption, access permissions systems, password protection, etc. Having clear data security policies to describe what is a trade secret, who is authorized to access, use, copy or disclose such information, and what employees must generally do to protect secret business information. Training employees on these matters. Adequate use of nondisclosure and confidentiality agreements with anyone to whom trade secret information is disclosed – especially employees. This includes keeping all such agreements current. Monitoring and enforcement of data security policies and nondisclosure and confidentiality agreements. Procedures to ensure the return or destruction of trade secret information in possession of others when relationships with employees, suppliers, distributors, and customers reach their end. Designating information as a trade secret can have important implications for executives embroiled in non-compete disputes. This is becasue New York courts generally will not enforce a non-compete agreement unless necessary to protect a companies trade secrets. If a company does not take steps to protect its trade secrets then the information will be not be deemed a trade secret. This will likely prove fatal to the companies attempt to enforce its non-compete agreement.