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August 19, 2016

Non-Competes Under Fire by New York's Attorney General

Courts in New York have disfavored broad non-compete agreements, and will enforce them only when they are reasonable and necessary to protect the employer's "legitimate business interests" (e.g. protecting trade secrets or confidential information, the employer's goodwill with a client or customer, or preventing competition from an employee with unique or extraordinary skills or services). And, such agreements must contain carefully tailored geographic and time limitations.

New York's Attorney General, Eric Schneiderman, has taken a clear position that, in his office's view, non-compete agreements for "rank-and-file" employees are never appropriate and has recently reached settlements with two different companies, each of which required all incoming employees to sign non-compete agreements. The settlements clearly send the signal that the New York Attorney General is critical of employers who require low-level employees to sign non-competes as a condition of employment.

The first settlement this past June involved reporters who worked for Law 360. Law 360, like many other companies, had required virtually all employees to sign a non-compete agreement - as part of the hiring process - prohibiting them from working for a competitor for one year after leaving the company. As a result of the Attorney General's position, Law360 agreed that, going forward, it would only require more senior level executives to sign such agreements.

According to Mr. Schneiderman's press release, "Unless an individual has highly unique skills or access to trade secrets, non-compete clauses have no place in a worker's employment contract." In that same press release, the Attorney General encouraged employees who "believe they are subject to an unlawful non-compete agreement" to contact his office.

The second settlement involved Jimmy John's Gourmet Sandwiches. Like Law360, Mr. Schneiderman stated that Jimmy John's had been requiring most entry-level employees to sign non-competes. Jimmy John's agreed that it would tell all of its franchise outlets that the New York Attorney General had concluded that its non-compete agreements are unlawful and should be voided. Jimmy John's also agreed to stop including these sample non-compete agreements in hiring packets it sends to its franchisees.

Does your company require a significant number of employees to sign non-compete agreements? If it does, you should re¬examine this process; focus your non-competes on those employees who you really need to restrict. For other employees, consider whether a confidentiality agreement, without a non-compete, is appropriate to protect your company's interests.

If you have any questions about compliance, or are unsure how this new enforcement initiative may impact your business, please contact the Labor & Employment attorney at Barclay Damon with whom you normally work or any attorney in our Labor & Employment Practice Area.


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