The three companies mentioned in the above linked page are a security guard company and two glass container companies. The non-compete rules extended one to two years after employment, and the glass container companies had geographic areas of the entire US or US+Canada+Mexico.
“FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition”
An exception in the proposed rule is that a non-compete clause is allowed to be valid when agreed to by the owner of a business when selling the business.
This is fantastic news! I have known several young people who got suckered into signing non competes when they were hired into low paying, entry level jobs. My S is one of them, signing a two year non compete at hire, and he stayed in a job in which he was taken advantage of for far too long because of it. He finally got the courage to leave, moving to a job in the same industry with a much better company & much higher pay. These companies take advantage of the folks who are frankly not in any kind of position that threatens the employer’s business should they go to a competitor. Well, yeah, they do threaten the business’s ability to keep low paid employees stuck with them. I love the idea that this is (hopefully) going to be a thing of the past.
My sister and BIL are both lawyers. They both told me that non compete clauses are generally worthless because most judges are not going to prevent people from making a living.
I have only signed non compete to not directly recruit employees from an ex-employer for x number of years.
In banking employers often prevent employees from working at a competitor for 3 to 6 months after resigning, but they would pay for the “garden leave.”
That’s absolutely not true in many states. Non competes are interpreted according to state law which varies greatly from state to state. I am an attorney who practices in this area.
I will defer to you because I am not an attorney. I am in NY state and I have been on both sides. Lawyers i have dealt with have told me not to worry or bother.
“ Are non-competes legal?
A non-compete is only allowed and enforceable to the extent it (1) is necessary to protect the employer’s legitimate interests, (2) does not impose an undue hardship on the employee, (3) does not harm the public, and (4) is reasonable in time period and geographic scope. An employer’s legitimate interest may include protecting an employer’s trade secrets and confidential information and preventing employees from taking specialized skills they gained on the job to a competitor. A non-compete’s restrictions must be no greater than necessary to protect the legitimate interests of the employer.
To determine if a non-compete is enforceable, courts consider an employee’s job duties, the employer’s business interest, and the language of the agreement. A court will not enforce a non- compete unless it determines the non-compete meets the criteria in the above paragraph.
A court may require an employee to comply with some parts of a non-compete agreement, even if other portions of the agreement are unreasonable, such as length of time or geographic scope. Generally, upon finding portions of a non-compete unreasonable, a court may invalidate the agreement entirely or may enforce the agreement for a shorter time or in a smaller area.”
My state has similar language. But security guards, glass workers and even entry level professionals are reluctant to go to court when they don’t have the means to pay.
In height tech world, there are plenty of other ways of keeping someone “on the hook”: NDAs, trade secrets, etc. if a company is truly worried about leaking their intellectual property, the company needs to be serious about protecting such property… and keeping its employees happy so they don’t jump over the fence.
Yes. This is not atypical law. Courts using this standard often enforce non completes. I have written many many briefs and obtained enforcement of non competes under this standard. I just relied on this NY case enforcing a non compete last week: Adecco USA, Inc. v. Staffworks, Inc.*, 620CV744MADTWD, 2020 WL 7028872, at *1 (N.D.N.Y. Sept. 15, 2020).
California law is much stricter and in that state they are very difficult to enforce.
Many departing employees cannot afford the lawyers and court battles to determine whether a non-compete legally “is reasonable in time period and geographic scope”.
Unless the state law draws a clear bright line that does not leave room for varying interpretation like “is reasonable”, it will disadvantage most employees.
True. However the cases are usually defended at the expense of the new employer.
Is this common for middle and lower paid employees subject to non-compete restrictions? (e.g. the security guards in one of the companies that the FTC took action on)
Employers seldom file cases to enforce the non-competes if they are truly low level. So in the actual cases, the new employer almost always is defending. The FTC likely filed suit in the cases discussed because the non competes have a purely in terrorem effect.
I have mostly worked in banking and the lawyers have often said the clause of “does not impose undue hardship on the employee” makes it hard to enforce non compete, so banks generally pay for the time period they want an ex-employee to not work for a competitor.
Yes, but only the base salary, but in finance bonuses can be several times base. So unless the employee was looking for some paid vacation time, it’s likely still a big pay cut.
The new employer would usually pay for a whole year of bonus and any deferred payments, otherwise people wouldn’t make the move.
Does New York have a clear cut standard of “reasonable”, or is it something that would have to be litigated in court for each case?
Seems like the in terrorem effect is a desired one on the part of some employers, in order to tilt the labor market in their favor and/or make existing employees feel “indentured”.
Has to be litigated in each case. And because every judge is different, you can have different rulings in almost identical circumstances.