BILL NUMBER:  S1589

 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
livelihood. 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 livelihood 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 covenant, 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 :

2015-16: S.1138-A
2014: S.7361/A.8409 (Steck)

 FISCAL IMPLICATIONS :

None.

 EFFECTIVE DATE :
This act shall take effect immediately.