As we discussed in the article, “Employers Rely On Employee Restrictive Covenants At Their Own Peril,” which was published approximately one year ago in FDT’s The Counselor, the use of restrictive covenants, and, in particular, the enforceability of non-competes by employers, was being called into question by both federal and state governments.

It is commonplace that when an individual is offered a job, that the employer will require that the prospective employee sign a non-compete agreement as a condition of employment (both while employed and for a set-time post-employment).

President Biden in July of 2021 issued an Executive Order that was meant to encourage the Chair of the Federal Trade Commission to institute rules to “curtail the unfair use of non-compete clauses or agreements that may unfairly limit worker mobility.”  Just recently the FTC indicated that due to an overwhelming response to its requests for comments that the earliest such a rule would be voted on would be April 2024.

In the meantime, the New York State legislature has been busy taking its own action as to the continued practice of non-competes in New York. The New York State Assembly and Senate have passed bills prohibiting non-competes in New York. The consolidated bill is just waiting for the Governor’s signature. The bill would not prohibit other restrictive covenant agreements covering non-solicitation of clients learned about during the employee’s tenure or non-disclosure agreements regarding trade secrets and confidential information, as long as, these clauses do no otherwise impinge on the employee’s rights under the bill.  Nor would the bill be retroactive to existing non-competes and there is no affirmative obligation on behalf of the employer to educate an employee on this law.  However, for employers that continue to enforce a non-competes, the proposed law does permit employees to sue their employer for damages, including liquidated damages, if the employer impermissibly binds an unwitting employee to a non-compete after the law has been put into effect. Any points not addressed in the bill would still be subject to the reasonableness test applied by New York courts, i.e., the solicitation of employees.

Our advice to our business clients is not to rely on employee non-competes to protect their interests if an employee is terminated voluntarily or involuntarily.

Employers, and their counsel, must continually monitor any changes in the law to make sure that they have agreements that are in compliance with the latest changes to the law.  We at FDT are here to answer any questions.