New York Attorney General Provides Guidance on Non-Competes
Non-compete agreements are prevalent in the technology sector where the protection of proprietary information is of paramount importance for those seeking to bolster a competitive advantage. Enforceable solutions designed to guard against theft of misuse of proprietary information are critical.
The issue often arises when an employee departs to work for a competitor. In formulating preventative plans, employers should be aware that there are differing state laws on non-compete agreements.
Some states require that restrictive covenants be reasonable in scope, geography and time. With narrow exception, California generally prohibits non-competes for publicly policy purposes (e.g., trade restraint).
The New York Attorney General has recently reached a settlement WeWork concerning its use of employee non-compete restrictive covenants. The announcement comes on the heels of other settlements recently reached between the NY OAG and other businesses regarding the use of non-compete agreements.
According to the OAG, WeWork required employees to execute overbroad non-compete agreements as a condition of their employment. More specifically, the OAG contends that the agreements were overbroad because the restrictions precluded employees from working for WeWork competitors for one year in cities where WeWork operates, regardless of employment position, access to proprietary information or level of compensation.
The settlement releases more than 1,000 WeWork employees from the restrictive covenants, while almost 2,000 shall be subject to modified terms (e.g., duration, geographic region and scope of employment). WeWork is also required to provide notice to recently departed employees of modifications to the non-compete restrictions.
The NY OAG has released Frequently Asked Questions for Non-Compete Agreements in New York State. It sets forth that “a non-compete is only allowed and enforceable to the extent it (i) is necessary to protect the employer’s legitimate interests, (ii) does not impose an undue hardship on the employee, (iii) does not harm the public, and (iv) is reasonable in time period and geographic scope.”
According to the FAQ, “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.” It also states that “a non-compete’s restrictions must be no greater than necessary to protect the legitimate interests of the employer.”
Although non-compete laws vary from state-to-state, in addition to time, scope and geography, courts typically take an employee’s job duties, the employer’s business interest and the language of the agreement as a whole into account.
Takeaway: Employers should consult with an FTC defense lawyer to review trade secret protection policies and confidentiality agreements and ensure that they are narrowly tailored and enforceable.
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Informational purposes only. Not legal advice. Always seek the advice of an attorney. Previous case results do not guarantee similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.