senate Bill S7361

2013-2014 Legislative Session

Relates to the state policy against restraint of trade

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Archive: Last Bill Status - In Committee


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
May 14, 2014 referred to labor

S7361 - Bill Details

See Assembly Version of this Bill:
A8409
Current Committee:
Law Section:
Labor Law
Laws Affected:
Add Art 32 ยงยง930 - 932, Lab L

S7361 - Bill Texts

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Relates to the state policy against restraint of trade.

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BILL NUMBER:S7361

TITLE OF BILL: An act to amend the labor law, in relation to the state
policy against restraint of trade

PURPOSE OR GENERAL IDEA OF BILL:

The bill clarifies the law of non-compete agreements which has become
confusing in light of the Court of Appeals decision in BDO Seidman v.
Hirshberg, 93 N.Y.2d 382 (1999). That decision established a balancing
test in which the employer's interest in enforcing the covenant was
balanced against the employee's interest in earning his or her liveli-
hood. Unfortunately, some Courts have interpreted the balancing test as
applying in all cases, rather than applying only to employees who were
not within categories-long considered to be exempt from such restrictive
covenants. The bill restores the law so that lower level employees and
independent contractors cannot be subjected to restrictive covenants.

SUMMARY OF PROVISIONS:

The bill establishes clear categories in which restrictive covenants are
not enforceable:

1) An employee terminated for reasons other than misconduct. The Court
of Appeals has clearly held that the consideration for a non-compete is
the promise of future employment not past services rendered. Hence,
when an employee is terminated, and future employment is no longer
offered, a non-compete cannot be enforced. Morris v. Schroder Capital
Mgmt. Intl, 7 N.Y.3d 616, 621 (2006)

2) Employees who are not unique. A unique employee is one who possesses
trade secrets or material that is akin to a trade secret. Cool Insuring
Agency, Inc. v. Rogers, 125 A.D.2d 758 (3d Dep't 1986).

3) An employee who has purchased or sold a share in the business. As a
condition of allowing someone to become an owner of a business, or when
selling ownership of a business, the business has an interest in
preventing the purchaser or the seller from competing and undermining
the viability of the business.

4) Learned professionals such as physicians have always been permitted
to enforce non-compete agreements.

5) Non-competes against attorneys are unenforceable due to the client's
right to counsel of his or her own choosing.

6) Covenants that are unreasonable in geographic extent or length of
years. The bill relies on existing case law to define what is meant by
"unique employee," "trade secret," and geographical or durational
reasonableness. The bill reserves the balancing test of the BDO Seidman
case only for use in circumstances which do not involve one of the

historic categories in which non-competes were unenforceable as a
restraint of trade.

JUSTIFICATION:

Often the ability of a business to sue former employees on a non-compete
agreement makes it practically impossible for them to earn their liveli-
hood free of economic coercion. If the rules of law become muddled, and
cases which lack merit are not dismissed at the outset, former employees
are forced to incur substantial legal defense costs, often running into
the tens of thousands of dollars, with the end result that the former
employee is economically punished for having signed a restrictive coven-
ant, or deterred from employment in his or her chosen field, even though
the restrictive covenant is ultimately found unenforceable. Thus, it is
imperative that rules of law in this field be clear and concise, as lack
of clarity leads to oppression and injustice.

LEGISLATIVE HISTORY:

2013-2014 Assembly A8490(Steck)

FISCAL IMPLICATIONS:

None.

EFFECTIVE DATE:

This act shall take effect immediately.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7361

                            I N  S E N A T E

                              May 14, 2014
                               ___________

Introduced  by  Sen.  AVELLA -- read twice and ordered printed, and when
  printed to be committed to the Committee on Labor

AN ACT to amend the labor law, in relation to the state  policy  against
  restraint of trade

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The labor law is amended by adding a new article 32 to read
as follows:

                               ARTICLE 32
                    POLICY AGAINST RESTRAINT OF TRADE
SECTION 930. POLICY.
        931. PARTICULAR RESTRAINTS OF TRADE UNENFORCEABLE.
        932. BALANCING TEST.
  S 930. POLICY. THE LEGISLATURE HEREBY REAFFIRMS  THAT  THE  POLICY  OF
THIS STATE IS TO DISFAVOR RESTRICTIVE COVENANTS IN EMPLOYMENT AS CONSTI-
TUTING A RESTRAINT OF TRADE.
  S 931. PARTICULAR RESTRAINTS OF TRADE UNENFORCEABLE. A COVENANT NOT TO
COMPETE,  OR NON-SOLICITATION AGREEMENT WITH RESPECT TO EITHER EMPLOYEES
OR CUSTOMERS, SHALL NOT BE ENFORCEABLE AGAINST A FORMER EMPLOYEE  OR  AN
INDEPENDENT  CONTRACTOR  WHO  IS NO LONGER IN A CONTRACTUAL RELATIONSHIP
WITH THE BUSINESS, WHEN ANY ONE OF THE FOLLOWING IS TRUE:
  (A) SUCH EMPLOYEE OR INDEPENDENT CONTRACTOR  HAS  BEEN  TERMINATED  OR
DISCHARGED FOR REASONS OTHER THAN MISCONDUCT.
  (B) SUCH EMPLOYEE OR INDEPENDENT CONTRACTOR:
  (I) IS NOT UNIQUE;
  (II)  DOES  NOT POSSESS TRADE SECRETS OF THE BUSINESS OR MATERIAL THAT
IS AKIN TO A TRADE SECRET;
  (III) HAS NOT PURCHASED OR SOLD ANY PORTION OF THE BUSINESS; AND
  (IV) IS NOT A LEARNED PROFESSIONAL.
  (C) SUCH EMPLOYEE OR INDEPENDENT CONTRACTOR IS AN ATTORNEY.
  (D) THE COVENANT IS UNREASONABLE IN GEOGRAPHIC EXTENT OR  IN  DURATION
BASED ON THE CIRCUMSTANCES OF THE CASE.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD13245-02-3

S. 7361                             2

  S  932.  BALANCING  TEST.  WITH RESPECT TO EMPLOYEES WHO, OR COVENANTS
WHICH, ARE OUTSIDE THE CATEGORIES DEFINED IN SECTION NINE HUNDRED  THIR-
TY-ONE  OF  THIS  ARTICLE,  SUCH RESTRICTIVE COVENANTS SHALL BE ENFORCED
ONLY WHEN THE LEGITIMATE INTEREST OF THE EMPLOYER OUTWEIGHS THE  EMPLOY-
EE'S OR INDEPENDENT CONTRACTOR'S INTEREST IN BEING ABLE TO PURSUE HIS OR
HER LIVELIHOOD AND THE PUBLIC INTEREST IN FREE AND OPEN COMPETITION; AND
SUCH  RESTRICTIVE  COVENANTS SHALL BE ENFORCED ONLY TO THE EXTENT NECES-
SARY TO PROTECT THE EMPLOYER'S LEGITIMATE INTEREST.
  S 2. This act shall take effect immediately.

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