NY’s attempt to ban non-compete agreements has some language issues

As New York prepares to outlaw non-compete agreements from employee contracts, legislation passed by the state Senate and Assembly employers still should be able to prevent the poaching of clients or the workforce.

“It’s a big deal; don’t get me wrong, but you’re still going to be able to enforce non-solicit and non-disclosure agreements,” said attorney Ryan McCall, associate at Tully Rinckey PLLC.

Assuming Gov. Kathy Hochul signs the bill into law, employers would be prohibited from requiring any employee to sign a non-compete agreement (NCA). NCAs typically prevent a departing employee from accepting employment, or starting their own business, in a similar field for a contractually specified time period.

The premise behind an NCA is that employees shouldn’t be able to take what they learned at one company — including through training paid for by that company — and immediately put it to use to benefit themselves or another employer. Companies also must be able to protect confidential material, competitive advantages and trade secrets while maintaining their customer base and workforce.

Yet legislators believed change was necessary. The Senate passed the bill banning NCAs by a 40-21 margin while the Assembly vote was 95-52.

“Non-compete agreements are detrimental to workers seeking employment and to our labor market and economy,” Assembly Speaker Carl Heastiesaid in a news release. “By banning these agreements, we will allow New Yorkers to move on to positions that are a better fit for them or offer better benefits without worrying that they can’t seek employment elsewhere.”

Attorney Peter Glennon of the Glennon Law Firm P.C., however, said the language within the legislation is incomplete, and that could lead to mayhem when it comes time to interpret or adjudicate.

“If the governor signs this simple, two-page legislation, it’s going to create confusion and chaos,” Glennon said. “There is too much ambiguity in the written language.”

For instance, most current NCAs are included as a clause within a contract. The legislation says that if a contract contains an NCA clause, “then the entire contract is void,” Glennon said. That alone opens the door for a legal challenge.

The law-in-waiting also doesn’t address what is commonly known as the “Mohawk Doctrine.” A person can’t sell a business, then immediately open a similar business and lure the clients of the sold business away. Simply put, you can’t be paid for the value that exists because of the customer base, then take that customer base away.

“So that’s another big problem,” Glennon said. “It’s clearly not well thought out.”

NCAs are common in several industries, for example: among software designers, in the medical profession, in the broadcast media and in many sales jobs.

“But you’re still going to be able to enforce the non-solicitation agreements,” McCall said, “and ultimately, I think non-solicitation agreements are more helpful. They protect a company from having a former employee poach a company’s clients or poach a company’s employees.”

With a focus on business litigation and employment law, Glennon represents some employers, but the majority of clients are employees. While it’s logical to think an attorney representing employees might be against NCAs, Glennon said those clauses can be beneficial.

“There are legitimate reasons for an employer to want an employee to sign a fair non-compete agreement,” he said.

Such as:

• the employer invests resources in an employee, providing training and mentoring that adds to an employee’s skillset and allows that employee to attain professional and financial growth.
• the employer markets and promotes an employee publicly, elevating that name within the industry.

“The issue isn’t that non-compete agreements are bad, it’s that many people don’t understand them,” Glennon said. “If mom or dad is struggling to make ends meet at McDonald’s and they’re able to train to become a phlebotomist and the NCA says they won’t have to repay the training costs if they leave, then a 10-year-old would say that’s a good thing.

“If anyone is beating the drum for a total ban on non-compete agreements, then they’re uninformed.”

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