Protecting Workers Rights: New York Proposes Legislation on the Misuse of Non-Competes

By: Jennifer Trinkwald

Whether a new opportunity arises or one is unhappy at their job, most employees have the ability to seek a new position at a different company; however, for those that sign non-compete agreements, this may not be an option.[1]  After conducting investigations and entering into settlement agreements with two large companies regarding their misuse of non-compete agreements this past spring, the New York State Attorney General, Eric T. Schneiderman, recently announced that he plans to introduce legislation next year focusing on reducing the misuse of non-compete agreements.[2]  Non-compete agreements, which prevent or restrict workers from accepting new employment based on the terms of the contract entered into between the employee and employer, may have negative effects on workers and the economy as a whole when misuesd.[3]  Not only does enforcement of non-compete agreements cause lower wages and decreased job mobility for workers, the depressed wages and limited mobility hinder the efficiency of the economy and curb innovation in the workforce.[4]

The first of the two agreements entered into by Schneiderman was with Law360, a top legal news website, who required the majority of their employees to sign non-compete agreements.[5]  The non-compete agreement prohibited employees from working for another legal news media outlet for one year.[6]  The problem with Law360’s non-compete agreement was that many of the employees required to sign the agreement did not have “highly unique skills or access to trade secrets,” a necessary element required by non-competes. To the contrary, many of the employees were recent graduates taking on their first job out of college.[7]

The second settlement agreement, announced just days after the Law360 announcement, was entered into with Jimmy John’s sandwich chain, which had franchises in New York.[8]  Under Jimmy John’s non-compete agreements, restaurant workers and delivery drivers could not get a job at any establishment that made more than ten percent of its revenue from sandwiches for two years within a two-mile radius.[9]  Non-compete agreements are generally used for purposes of “protect[ing] trade secrets, reduc[ing] labor turnover, impos[ing] costs on competing firms, and improv[ing] employer leverage in future negotiations with workers” and are generally used in companies which may have high training and turnover costs.[10]  In this case, it seems safe to say that Jimmy John’s is not in the industry that non-compete agreements are intended for, and additionally, low-wage workers are not the types of workers that non-compete agreements are aimed at.[11]  In Attorney General Schneiderman’s words, the use of non-compete agreements under these circumstances is “unconscionable.”[12]

Schneiderman’s announcement of this proposed legislation seems to be an outgrowth of these settlement agreements as well as a result of the White House’s “Call to Action” on non-competes, which urges states to “ban unnecessary non-compete agreements.”[13]  Schneiderman’s New York proposal will include a number of protections to protect workers rights including, but not limited to, “a ban on all non-competes for low-wage workers; a requirement that employers offer extra compensation to employees who sign non-competes; and a first-of-its-kind provision granting employees the right to seek liquidated damages when subjected to unlawful non-competes.”[14]  Similar efforts are being seen throughout the country in what seems to be a positive step forward in protecting workers rights.[15]  It will be interesting to see how the New York proposal will pan out.

[1] See Office of Economic Policy, U.S. Dep’t of the Treasury, Non-compete Contracts: Economic Effects and Policy Implications 3 (2016), https://www.treasury.gov/resource-center/economic-policy/Documents/UST%20Non-competes%20Report.pdf (reporting that “eighteen percent of all workers” are working under a non-compete agreement).

[2] See Press Release, N.Y. State Attorney Gen., A.G. Schneiderman Proposes Nation’s Most Comprehensive Bill To Curb Widespread Misuse Of Non-Compete Agreements (Oct. 25, 2016) (on file with author), http://www.ag.ny.gov/press-release/ag-schneiderman-proposes-nations-most-comprehensive-bill-curb-widespread-misuse-non [hereinafter Press Release Bill]; Press Release, N.Y. State Attorney Gen., A.G. Schneiderman Announces Settlement With Major Legal News Website Law360 To Stop Using Non-Compete Agreements For Its Reporters (June 15, 2016) (on file with author), http://www.ag.ny.gov/press-release/ag-schneiderman-announces-settlement-major-legal-news-website-law360-stop-using-non [hereinafter Press Release Law360]; Press Release, N.Y. Attorney Gen., A.G. Schneiderman Announces Settlement With Jimmy John’s To Stop Including Non-Compete Agreements In Hiring Packets (June 22, 2016) (on file with author), http://www.ag.ny.gov/press-release/ag-schneiderman-announces-settlement-jimmy-johns-stop-including-non-compete-agreements [hereinafter Press Release Jimmy John’s].

[3] Office of Economic Policy, supra note 1, at 3, 6.

[4] See id. at 18-21; The White House, Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses 5 (2016), https://www.whitehouse.gov/sites/default/files/non-competes_report_final2.pdf; See also Press Release Bill, supra note 2.

[5] Press Release Law 360, supra note 2.

[6] Id.

[7] Id.

[8] See Press Release Jimmy John’s, supra note 2.

[9] Id.

[10] Office of Economic Policy, supra note 1, at 3.

[11] See Press Release Jimmy John’s, supra note 2.

[12] Id.

[13] See Press Release Bill, supra note 1; Ellyn Fortino, White House Encourages States To Ban Non-Compete Agreements, Illinois Attorney General Agrees, Progress Ill. (Oct. 27, 2016), http://progressillinois.com/posts/content/2016/10/26/white-house-encourages-states-ban-non-compete-agreements-illinois-attorney.

[14] See Press Release Bill, supra note 1 (listing provisions within the proposed bill).

[15] See Fortino, supra note 13.

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