NYS Attorney General Issues Guidance on Noncompetition Agreements

NYS Attorney General Barbara Underwood recently published guidance aimed at curbing the misuse of noncompetition agreements in New York State. The attorney general's guidance cautions employees against signing noncompetition agreements and encourages them to not only contact an attorney before signing noncompetition agreements, but to also contact the Labor Bureau of the Attorney General's Office if employers are requiring employees to sign unreasonable noncompetition agreements.

In recent years, the attorney general has investigated suspected misuse of noncompetition agreements for employees who did not have access to trade secrets or confidential information. Indeed, former NYS Attorney General Eric Schneiderman all but declared war on noncompetition agreements in October 2016, when he announced his intention to introduce the "nation's most comprehensive bill to curb widespread misuse of noncompetition agreements."

The attorney general's recent guidance highlights the following examples in which settlement agreements have been reached with employers to stop using noncompetition agreements:

• The sandwich chain Jimmy John's agreed to stop using noncompetitions for its sandwich makers. The noncompetitions had prohibited them from working at another Jimmy John's location for one year, and at any restaurant within a two-mile radius of a Jimmy John's location that earned more than 10 percent of its revenue from sandwiches for two years.
• The legal news website Law360 agreed to stop using noncompetitions for editorial employees that prohibited them from working for any media outlet that provided legal news for one year after their employment ended.
• The co-working company WeWork agreed to stop using noncompetitions for cleaners and many other rank-and-file employees. The noncompetitions had prohibited these employees from working for any competitor in any of the dozens of cities where WeWork operated, both nationally and internationally, for one year after their employment ended.
• The national medical-information-services company EMSI agreed that phlebotomists and other rank-and-file employees would no longer be prohibited from working for a competitor by a noncompetition.

The guidance further notes the attorney general has, in fact, proposed legislation to prohibit noncompetition agreements for workers earning below $75,000 per year. The proposed legislation remains under consideration.

In light of the attorney general's recent efforts to combat the misuse of noncompetition agreements in New York, employers using those restrictive covenants should re-evaluate whether the noncompetition (1) is necessary to protect the employer's legitimate business interests, (2) imposes an undue hardship on the employee, (3) harms the public, and (4) is reasonable in time period and geographic scope. Depending on the circumstances, employers should consider voiding any existing noncompetition agreements and discontinuing the requirement that new hires sign those restrictive covenants as consideration for employment.

All that said, noncompetition agreements that are no greater than necessary to protect the legitimate interests of employers remain enforceable and, in many instances, are vital tools in protecting an employer's trade secrets and confidential information and in preventing employees from taking specialized skills learned on the job to a competitor.