DISCLAIMER: This post gives a general overview of restrictive covenants. It is not legal advice. If you require legal counsel, please make an appointment to discuss your unique circumstances with an experienced attorney of your choosing. Don’t rely solely on what you read on the Internet.
The recent memorandum from National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo on restrictive covenants has sparked significant discussion among employers and employment lawyers. Not so much among employees. Often, employees don’t learn of their rights in relationship to the non-competition clauses and other restrictions until they seek counsel to review severance agreements. Some employers are happy about that and miss opportunities to build loyalty in effective and inexpensive ways.
As we review the NLRB Memo, let’s reflect on how we can create workplaces that honor the interests of both employers and employees, remembering employment is a mutually beneficial partnership toward the achievement of compatible goals.
Understanding the Memo
Abruzzo’s memorandum takes a firm stance against non-competition clauses and “stay-or-pay” agreements that restrict employees from seeking gainful employment without financial punishment. Similar to the Federal Trade Commission’s (FTC) view, the NLRB finds these restrictive covenants often hinder employee mobility. They also violate federal labor law unless they are narrowly tailored to protect legitimate business interests.
How the Memo Effects New York Employers
Restrictive Covenants in New York
New York law generally disfavors non-competition agreements, viewing them as unreasonable restraints on trade. They can also put stress on unemployment insurance programs that pay unwarranted benefits. We want people who are ready, willing, and able to work to find gainful employment.
NYS Courts apply a rigorous standard to determine whether “non-compete” agreements are enforceable. To be upheld, they must:
- Protect legitimate business interests (e.g., trade secrets, confidential information, client relationships)
- Not impose undue hardship on the employee
- Not harm the public by excessively restricting competition
- Be reasonable in duration, geography, and the type of employment or line of business
For example, it’s unlikely an employer can restrict an employee from working in the entire state as a licensed professional for several years. We’ve heard stories of veterinarians and other caregivers being driven to licensure in new states by contracts demanding damages of more than $10,000.00 when these employees leave employers. This seems a lot like involuntary indentured servitude, which was outlawed by the Thirteenth Amendment of the United States Constitution after the Civil War.
We’ve also seen contracts warning salespeople of $100,000.00 penalties if they leave an employer and use the client lists they developed before taking their jobs. These overly broad exercises of control are exactly why various agencies are pushing back.
It’s time to rethink how we structure our employment agreements to ensure they are fair and just for all parties involved.
Resolve workplace conflicts holistically and create the peaceful and productive work experience we all want.
The Employer’s Perspective
Employers often implement non-competition agreements to protect their investments in training and to safeguard proprietary information. These are valid concerns. However, it’s crucial to balance these interests with the rights of employees to seek new opportunities and grow in their careers. Accept that every employee will eventually leave in some way. They will retire, get sick, and die. You will outgrow others, or vice versa. Forcing the employment partnership beyond its natural lifespan will be harmful to both of you.
Here are some strategies for employers that need restrictive covenants to protect legitimate business interests:
- Narrowly tailor agreements. Ensure that the contracts are specific and limited in scope. Focusing on protecting things like intellectual property, personally identifiable information, and private health information without unnecessarily restricting an employee’s future employment opportunities.
- Invest in employee growth. Foster a workplace culture that encourages loyalty through positive reinforcement rather than punitive measures. Recognize and reward employees’ contributions, and provide clear paths for career advancement within the business, where appropriate. Be prepared for them to leave if you can’t provide the desired advancement, and wish them well when they go.
- Communicate transparently. Explain the reasons behind any restrictive covenants and how they benefit both the business and the employee. If you can’t explain your reasoning, you probably don’t understand your own policies, or you are trying to pull a fast one on your employees. That is why they want to leave.
The Employee’s Perspective
For employees, restrictive covenants can feel like a barrier to career growth and financial stability. Here are some tips to avoid unnecessary legal action against employers:
- Know Your Rights. Familiarize yourself with the legal landscape regarding restrictive covenants, such as non-competition clauses. This summary from the NYS Attorney General’s office will answer most of your questions about them in this state.
- Open Dialogue. Engage in open and honest conversations with your employer about your career goals and how restrictive covenants might impact them. There are usually ways for you to both get what you need.
- Seek Legal Advice. If you feel that a restrictive covenant is unfair or overly restrictive, seek legal advice. Many smaller employment law firms offer free and low-cost consultations. Here are some you might consider:
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- Nance L. Schick, Esq., Third Ear Conflict Resolution (That’s me.)
- Kenneth J. Katz, Esq., Katz Melinger PLLC
- Alison Greenberg, Esq., Law Offices of Alison Greenberg, PLLC
Creating Employment as a Partnership
Both employers and employees have valuable contributions to make to the clients they serve. When they work together with mutual respect and understanding, they create more peaceful and productive workplaces that benefit them and those around them. Approaching restrictive covenants with a balanced perspective, is part of this process.