Non Compete Agreements

Can I Void a Non-Compete Agreement in New York?

A non-compete agreement might seem like a trivial work request when you sign it, but the terms of that agreement can severely limit your ability to make a living after you separate from your employment. So what happens if you signed a non-compete agreement that has eliminated your job prospects? There are ways around a non-compete agreement, but you need to know what to look for in the agreement terms and characteristics of your old job.  How Does a Non-Compete Work? A business might maintain a competitive edge by offering a superior product, offering better prices, keeping business and product formulas a secret, or preventing its employees from working for a competitor. Non-compete agreements keep former employees from directly competing with a business by barring them from doing certain work for competing businesses or in certain geographical areas.  When you apply for a new job, your prospective employer might ask you if you’re subject to any non-compete agreements. If a prospective employer believes that non-compete terms make hiring you too risky, you could lose a job opportunity. Also, a former employer could sue you for breaking a non-compete agreement. If you lose at trial, you might lose your new job and have to pay damages. Breaking a non-compete agreement can be painful, so it’s important to know your options for voiding a non-compete contract before you sign one and before you apply for a new job.  How Do I Get Out of a Non-Compete Agreement? The first step to voiding a non-compete contract is understanding when a non-compete agreement is enforceable in New York. To help prevent employee abuse, the State of New York requires that non-compete contracts adhere to the following guidelines: Their terms must be necessary to protect the employer’s legitimate interests, Their terms can’t impose an undue hardship on the employee, Their terms can’t harm the public, and  The time period and geographic scope they cover must be reasonable. If a non-compete agreement doesn’t comply with these guidelines, it’s unenforceable as written. A court might rewrite an unenforceable agreement or throw the whole agreement out altogether.   You Can Void a Non-Compete by Proving Its Terms Aren’t Necessary Many employers use non-compete agreements to prevent skilled employees with company secrets from taking their skills and secrets to competitors. If your work with your former employer didn’t require specialized skills or didn’t give you access to confidential business information, a court might deem the contract terms unnecessary and free you from restrictions on your job search. If you want to void a non-compete agreement, you should be clear about your former job obligations and the tools you needed to fulfill them.  You Can Void a Non-Compete by Proving How Severely Its Terms Would Affect You The inability to make a living could be an “undue hardship” that renders a non-compete unenforceable. Think about your job skills and the specific terms of the non-compete agreement you signed. If the terms of the agreement make it almost impossible for someone with your skills to find a new job, you might be able to void the agreement. But be aware that the inability to make the same wages or work the same exact job isn’t always an undue hardship.  You Can Void a Non-Compete by Proving Your Job Skills Are Rare and Necessary for Public Health If the job you perform helps the public in a significant way (e.g., healthcare, environmental protection, etc.) and there aren’t many people in your area who can do your job, non-compete agreement terms that prevent you from working might create unenforceable harm to the public. You Can Void a Non-Compete by Proving Its Terms Go Too Far or Last Too Long Whether a non-compete is unenforceable because it covers too large of a geographical area or it lasts too long can depend on many factors. Enforceability can depend on your industry, skills, location, etc. An experienced employment attorney can determine what non-compete terms aren’t reasonable in your case.  Seek Attorney Help to Fight for Your Livelihood At Ottinger Employment Lawyers, we are consistently successful and aggressive advocates for employees’ rights. We have also experienced attorneys who value constant communication with our clients to help ensure we get what they need. We want to help you thrive in the workplace. Give us a call at 866-234-3862 or contact us online.  For details about our New York office, click here.

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Employment Law Blog

Can a Doctor Be Held to a Non-Compete in New York?

A non-compete agreement is a written contract that prohibits an employee from operating a competing business or working for a competitor in a specified geographic area for a specified period of time. A non-compete agreement may be a separate agreement, or clause in an overarching employment contract. What Does a Physician Non-Compete Agreement Do? Most physicians are familiar with non-compete agreements. Some courts refer to these as restrictive covenants not to compete. Medical employers frequently use these instruments to protect their medical practice from competition by former physician employees. A physician non-compete clause especially comes into play where an employer has invested significant time and resources to provide specialized training to a physician. It would be unfair for a physician employee to simply quit after this type of valuable training, set up a practice across the street, and poach patients from their former employer.   How Are Non-Compete Agreements Enforced? There are no federal laws governing the use of physician non-compete clauses. Rather, state contract law determines whether a non-compete agreement is enforceable. In New York, former employers enforce non-compete agreements. Enforcement comes in the form of a lawsuit. The former employer can ask the judge to enforce the non-compete agreement and require the former employee to abide by its terms and conditions. Although general principles of contract law apply, additional issues arise when considering non-compete agreements and particularly physician non-compete clauses. Contact Us Schedule your free consultation. When Is a Non-Compete Agreement Enforceable? To determine if a non-compete agreement is valid and enforceable, New York courts will take into consideration the language of the written contract and the former employee’s job duties. New York Courts will only enforce a non-compete agreement if it satisfies the three factors we will discuss below. The Non-Compete Agreement Is Necessary to Protect the Employer’s Legitimate Business Interests New York courts have recognized a broad range of legitimate employer interests safeguarded by valid non-compete agreements. These include: An employer’s trade secrets or confidential information; An employer’s goodwill and reputation within its industry or market; and An employer’s interest in preventing competition with the former employee when the services at issue are highly specialized or unique in some way. These legitimate business interests are typically protected by the courts. The Non-Compete Agreement Does Not Impose an Undue Hardship on the Employee and Is Not Harmful to the Public Courts will strike a non-compete agreement down if it imposes an “undue hardship” on the employee, or causes “injury” to the public. For example, New York courts have held that firing an employee without cause may void an otherwise valid non-compete agreement. In another case, a court held that a non-compete agreement was void because it unduly restricted the employee’s right to apply skills and knowledge acquired by the overall experience of their previous employment. The Non-Compete Agreement Is Reasonable in Time Period and Geographical Scope New York courts focus on the particular facts and circumstances of each case. Judges review a contract to determine whether the non-compete agreement is overly broad. Courts consider a clause to be overbroad if it includes an unnecessarily large geographical area or too extensive a time period. New York courts generally consider periods of six months or less to be reasonable and permissible. Some courts have even upheld non-compete agreements that extend up to two years in duration, depending on the circumstances of the case. With respect to geographical scope, state courts look to whether the prohibited area is reasonably related to the geography of the employer’s medical practice. Arguments Against Non-Compete Agreements for Medical Professionals Non-compete agreements are alive and well in New York. As long as they satisfy the criteria discussed above, courts will generally enforce their terms. However, the law may be shifting somewhat.  For instance, courts may scrutinize non-compete agreements that materially limit a patient’s access to care or their choice of doctor.   The American Medical Association (AMA) is on record stating that it, “discourages any agreement between physicians which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of employment.” The AMA’s reasoning stems from concern for public welfare. It has stated accordingly, “[C]ovenants not to compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services.” A Seasoned Employment Law Firm Who Will Fight For You For nearly 22 years, Ottinger Employment lawyers have assisted clients with many types of work-related matters. We are experienced in litigating the interests of physicians and employers alike. Whether we are fighting an unconscionable restriction on a physician’s right to practice or defending an employer’s right to impose reasonable restrictions on former employees, Ottinger Employment Lawyers know how to fight to obtain the results you deserve. Contact us today for a free consultation.   For details about our New York office, click here.

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Non Compete Agreements

Non-Compete Agreements in New York Overview

Ottinger Employment Lawyers Can Help with Non-Compete Agreements 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. Ottinger Employment Lawyers have been assisting executives with non-compete issues since 1999. Submit the short form below to get started with a consultation. Our attorney, Robert Ottinger is an expert when it comes to non-compete agreements in New York. Watch the short video below to find out if your non-compete is enforceable. If you would like to get in contact with a New York employment law attorney, contact us today. Important Information About Non-Compete Agreements in New York 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 your free consultation started. 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 New York? Here are five ways you 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. 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 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.   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: Engage in the business of the company or in any business that is in competition with the business of the company, Be employed by, consult for, or provide any serviced 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, Solicit or accept the same or substantially related business of any other 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 interfere with the goodwill and customer relationship of the company. The Legal Standard Used to Evaluate New York Non-Compete Agreements In New York, courts disfavor non-compete agreements and enforce them only when necessary.  Here are the main factors courts consider: non competes are enforced only when necessary to protect legitimate business interests such as trade secrets or special skills acquired during employment non compete agreements must be reasonable in time and geographic reach the agreement cannot be harmful to the general public the agreement must not be unreasonably burdensome on the employee. Courts apply the same standard to non-solicitation agreements. Eight Ways to Defeat a New York Non-Compete Fired Without Cause If your employer is not willing to employ you, courts generally will not enforce a non-compete agreement. This is almost black letter law in New York, so if you were fired without cause, your non-compete agreement is not enforceable. But there is no reason to feel trapped by that non-compete agreement. It’s not enforceable in this situation. A Common Scenario: Today, most New York executives are bound by non-compete agreements. And many find themselves fired without cause or laid off at some point. They feel trapped by their non-compete agreement. They want to stay in their field because that is where they offer the most value. They have bills to pay and families to support. But, their non-compete agreement forbids working in their field. I n addition, most of these executives don’t have access to their former employer’s trade secrets. They usually hold positions in sales, management, operations or other areas that did not necessitate access to genuine company trade secrets. If you find yourself […]

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Employment Law Blog

Defeating a Non-Compete Agreement

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.  

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Non Compete Agreements

The “Choice of Law” in Non-Compete Disputes

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.

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Non Compete Agreements

New York Non-Compete: The Legitimate Interests Test

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 […]

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Employment Law Blog

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

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 non-compete 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. 

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Employment Law Blog

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

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 […]

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Non Compete Agreements

Why Not Blue Pencil?

“Blue penciling” refers to the convention whereby a court may exercise its discretion to modify parts of a contract that violate public policy, and which are, therefore, void.  In the employment context, the questions whether, when and how much blue-penciling is warranted come up most frequently when courts are asked to enforce restrictive covenants such as non-compete and nonsolicitation agreements.    A decision last year in the Colorado Court of Appeals, 23 LTD v. Herman, illuminates why some courts have retreated from “blue penciling.”  2019 Colo. App. 113, No. 18CA0950.    Ms. Herman Solicits a Customer In the Colorado case, the company, 23 LTD, doing business as Bradsby Group, sued a former employee, Tracy Herman, for breach of non-compete and nonsolicitation sections of her employment agreement.    Herman had been hired by Bradsby as a legal recruiter.  She had signed an employment agreement stating that she would not become for “twelve (12) months from the date of termination of employment … an owner, partner, investor, or shareholder in any entity that competes with Bradsby” within a restricted area.  The restricted area was defined as any place within thirty miles of Bradsby’s principal place of business, which was located in downtown Denver.  The agreement also included a nonsolicitation provision restricting Herman from contacting any person or entity who had had any contact with Bradsby during Herman’s last twelve months of employment with them.  At the conclusion of her employment with Bradsby, Herman formed her own company, obtaining and designating a mailing address for it at a location outside the restricted area.  She later reached out to a former job applicant from her time at Bradsby to inquire whether anyone in the contact’s network might be interested in a position she was recruiting to fill.  The contact had been previously offered a position with a law firm client of Bradsby’s but had turned it down.  When Herman contacted him later, he asked whether that law firm job might still be open.  Herman then communicated with the law firm. The contact was eventually hired by the law firm, and Herman collected a fee from the hiring firm. A One Dollar Verdict At trial, a jury decided that Herman had not violated the non-compete provisions of the agreement but that she had violated the nonsolicitation provision.  The jury awarded damages to Bradsby of one dollar.  However, the district court set aside that verdict because it found the nonsolicitation provision of the contract to be so broad as to be void and in violation of Colorado law.  The district court also declined to “blue pencil” the nonsolicitation provision to make it enforceable.    Upon appeal, Bradsby argued that the district court erred and/or abused its discretion in declining to blue-pencil the nonsolicitation provision.  Bradsby argued that the severability clause in its agreement obligated the district court to blue-pencil the agreement to conform to Colorado law.  Stating that “Colorado law provides little guidance as to when, and to what extent, trial courts may blue pencil unreasonable non-compete provisions,” the court of appeals considered case law from other jurisdictions.   In discussing its reasoning, the court of appeals pointed out that even though a contract may grant a court the authority to modify an overly broad non-compete agreement, doing so would essentially require the court to rewrite an unlawful contract.  No Blue Penciling The court noted that other states’ courts had rejected the proposition that parties to a contract may delegate the responsibility to the court to draft language for them.  “We are firmly convinced that parties are not entitled to make an agreement, as these litigants have tried to do, that they will be bound by whatever contract the courts may make for them at some time in the future.”  Quoting Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d 1, 4 (Ark. 1973).  The court further explained that it is not itself a party to the contract.  The parties “have no power or authority to enlist the court as their agent.”  Thus, parties to a contract cannot “contractually obligate a court to blue pencil non-compete provisions that it determines to be unreasonable.”    “Fundamentally, it is the obligation of a party who has and wishes to protect, trade secrets to crafting contractual provisions that do so without violating the important public policies of [the] state.  That responsibility does not fall on the shoulders of judges.” Citing Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d at 4; Bayly, Martin & Fay, Inc. v. Pickard, 780 P.2d 1168, 1175 (Okla. 1989).   Accordingly, the court of appeals held that “it is not the function of a court to write or rewrite contracts for parties to enable enforcement of a contract that, as written, violates the public policy of the state.”  While a court may elect to blue pencil “an otherwise offensive restrictive covenant,” the trial court “has broad discretion whether and when to exercise that authority.”

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Employment Law Blog

Non-Compete Trends Favor Executive Mobility

An encouraging new trend we have seen lately is more states enacting laws or enhancing existing laws that limit the enforceability of non-compete clauses.  The specific laws that apply to non-compete clauses in employment contracts vary greatly from one state to another.  While some of the basic law around this area is outlined in court opinions — or “case law” — there are also legislatively enacted laws that affect what is and isn’t allowed in different states.  This year, Utah, Idaho, and Colorado joined recent moves by California and Illinois to strengthen laws covering an employee’s right to switch employers.  Meanwhile, case law around non-compete clauses also continues to develop. Non-compete clauses can take many forms.  Generally speaking, a non-compete clause is a provision that restricts an employee from directly competing with the employer while in the employment relationship, from accepting later employment with a competitor of the employer or from going into business against the employer after the employment relationship has ended.  A non-compete provision may cover only a short period after employment, or it may last many years.  Non-compete agreements may or may not include provisions against “poaching” one’s colleagues (known as “non-solicitation” clauses).  Geographically, they may be limited in scope to a particular neighborhood, town or city, or they may reach across an entire state or region.  They may only encompass the employer’s existing clientele, or they may broadly restrict employment by the employee within an entire industry.  Indeed, where these lines are drawn in a particular non-compete clause can determine whether or not the clause is considered legal and enforceable or null and void. Employers are, of course, fond of non-compete clauses because they perceive them as protecting competitive advantages and trade secrets while supporting workforce stability. For employees, though, non-compete clauses can have drastic and lasting effects on their ability to earn a living.  And, for society in general, the impacts of non-competition agreements can be significant.  Since they restrict people’s ability to switch jobs easily, taking their accumulated expertise and knowledge with them, they impact social and geographical mobility as well as wage and salary growth. It is conceivable that left entirely unfettered, they could hurt innovation across whole industries. Thus, like other restraints on free-trade and competition, there are limits to what various jurisdictions — and the courts — consider acceptable in a non-compete clause.   Here are some recent developments: This spring, Utah enacted a new law to limit the reach of non-compete agreements in the broadcasting industry. This law adds more strength to a bill they enacted two years ago.  The two-year-old law in Utah imposed, in general, a one-year post-employment time limit on non-compete agreements.  With this new law, employers in the broadcasting industry may not impose non-compete agreements on employees making a salary of less than $47,476 annually.  Nor may they enforce a non-compete provision against an employee who was not terminated for cause unless the employee breached their employment contract. Also this spring, Idaho moved to repeal a burdensome requirement it had enacted two years ago which required employees to prove that their change of employers did not irreparably harm their former employer. With Idaho’s repeal of Idaho Code Section 44-2704(6), the burden is once again on the former employer to show a likelihood of irreparable harm before a court may issue an injunction against the employee’s new employment. In Colorado, the legislature passed a law that allows physicians to continue treating patients with “rare disorders” even when that would otherwise constitute a violation of the physician’s non-compete agreement. This serves to clarify Colorado’s existing law which generally prohibited non-compete agreements except in certain specific cases, such as for protection of trade secrets. In addition to these statutory changes, we’ve also seen recent case law affecting non-compete agreements: In Wisconsin, non-compete clauses are governed by Wisconsin Statute 103.465. In  Wisconsin, to be enforceable, the statute requires that a non-compete covenant must be “reasonably necessary for the protection of the employer,” only cover a reasonable period, only cover a reasonable territory and not be an unreasonable restraint on employees.  In January this year, the Wisconsin Supreme Court held, in Manitowoc v. Lanning, that this statute, which generally refers to “covenants not to compete,” also applies to non-solicitation agreements that would prevent employees from soliciting, inducing or encouraging other employees to terminate employment with one employer to accept employment with a competitor.  The court found that the statute applies to all such covenants that are restraints of trade, regardless of whether they specifically include the term “compete” in their label. Last but not least, the South Dakota Supreme court decided a case in March of 2018 entitled Farm Bureau Life Insurance v. Dolly. In that case, the court declined to enforce a non-compete clause.  The clause would have prevented a former insurance salesman from selling insurance to any of Farm Bureau’s former customers, even though the former customers had approached him and he had not actually reached out to the customers or otherwise solicited them for their business.  The court held that “an agreement not to solicit — rather than not to sell to — an insurer’s existing customers [was] the only reasonable interpretation of [South Dakota Codified Laws 53-9-12].”    The court concluded by stating, “The general rule against contracts in restraint of a lawful profession, trade, or business is a legislative expression of public policy….”

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