On Friday, July 9, 2021, President Joe Biden signed an Executive Order that would overstep the legislative branch and directly ask the Federal Trade Commission (“FTC”) to create a new rule that would limit the use of non-competes nationwide. One of the main purposes of the Executive Order is “to make it easier to change jobs and help raise wages by banning or limiting non-compete agreements… that impede economic mobility.” A more detailed breakdown of the Executive Order can be found in the White House’s Fact Sheet by clicking here: FACT SHEET.
According to the Fact Sheet, the 72 initiatives laid out in the Executive Order will improve people’s lives by, amongst other things, addressing the barriers to competition that drive down wages for workers.
For example, “When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace.” The Fact Sheet asserts that companies use non-compete clauses to “stifle competition,” which then slows productivity, business investment, innovation, income, and wealth, but also widens “racial inequality.” See, FACT SHEET.
Does New York State Enforce Non-Compete Clauses?
Many states already ban the use of non-compete clauses; however, New York State does not.
Currently, courts in New York State use a case-by-case analysis to determine the enforceability of a non-compete agreement. In New York, covenants not to compete are typically against public policy and tough to enforce.
An employer in New York State will not likely succeed in enforcing a non-compete clause unless it can prove all three of the following factors to show that the non-compete clause: (1) is no greater than is required for the protection of the legitimate interest of the employer (narrowly tailored); (2) does not impose undue hardship on the employee; and (3) is not injurious to the public. BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388 (1999).
Based on recent cases in New York State, a non-compete clause will not likely be enforced if:
- The time period for the noncompete clause is limited to more than 1 year.
- The non-compete clause is not limited to a specific industry or role within that industry.
- No additional benefit is provided to the employee in exchange for a non-compete agreement.
- The employer is unable to show it has a narrowly tailored, legitimate interest in enforcing the non-compete.
- It is broader in scope or not geographically limited to a region, city, or neighborhood.
How Does the Non-Compete Executive Order Affect New York State?
If the FTC were to create the rules being directed by the Executive Order, then non-compete clauses would be limited on a federal level, which would be a game changer in New York State for both employers and employees alike. I will keep you informed of this issue as it is further developed.
This article is intended for general information and educational purposes only and should not be considered legal advice or counsel. No attorney-client relationship is created by the distribution of this article. The substance of this article is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2021 Regina Sarkis, Esq.