Non-compete agreements are controversial, yet unfortunately commonplace in New York. With the recent COVID-19 pandemic, as of the time of this writing, a record 10 million people have filed for unemployment benefits in the United States. See Avie Schneider, Staggering: Record 10 Million File for Unemployment in 2 Weeks, NPR (April 2, 2020). This number is expected to grow, with many experts predicting a 13 percent unemployment rate. See Justin Wolfers, The Unemployment Rate Is Probably Around 13 Percent, N.Y. Times (April 3, 2020). If an employee is also saddled with a non-compete agreement, the reduced job opportunities that exist will become even tougher to obtain and maintain for those in need of a position. While both high-earning and low-earning employees are impacted by non-compete agreements, lower income earners do not have the resources to mount a fight against a company seeking to enforce the non-compete.

The COVID-19 pandemic, with its epicenter in New York, starkly exposes the great risk faced by low-wage earners previously employed at restaurants, hotels, retail operations and other "non-essential" businesses which have been forced to close as well as the inequality among workers. Despite significant action by other states, New York state has yet to enact legislation with restrictions for non-compete agreements to protect low-wage earners in its jurisdiction. Even prior to the COVID-19 pandemic, a growing number of states such as Maine, New Hampshire, Maryland, Oregon, Washington, Rhode Island, with legislation that went into effect in 2019 or this year, have recognized the problems associated with the use and enforcement of non-competes against low income earning workers and have passed legislation to combat this problem. Illinois and Massachusetts had enacted protections for lower wage worker in this area a few years prior to this recent state action.

The focus in the recent flurry of activity is the protection of lower income workers. In Maine, for example, the law now provides that employers cannot mandate employees to sign non-compete agreements unless the employee earns in excess of 400% of the federal poverty level, which is $49,960 as of 2020. Me. Stat. tit. 26 §§599-A (2020). New Hampshire law now provides that all non-compete agreements will be invalid and unenforceable for "low-wage" employees in New Hampshire employees who earn less than or equal to 200% of the federal minimum wage ($14.50). N.H. Rev. Stat. Ann. §275.70-a (2019). Maryland law also prohibits employers from entering into non-compete agreements with employees earning equal to or less than $31,200 per annum or $15 per hour, but expressly reserves employers' rights to enforce contracts that prohibit the taking or use of client lists or other client-related information that is proprietary. Md. Code Ann., Lab. & Empl. §3-716 (2019). Rhode Island law provides that non-compete agreements will be unenforceable against: employees classified as non-exempt under the Fair Labor Standards Act; undergraduate/graduate students participating in an internship or other short-term employment relationship; employees age 18 or younger (these three provisions are similar to protections enacted in Massachusetts); and low-wage employees making no more than 250% of the federal poverty level, or $31,225 annually. See 28 R.I. Gen. Laws §28-59-1-3 (2020); MASS Gen. Law c. 149, §24L (2018).

Oregon has similarly mandated that non-compete agreements are only enforceable against those employees who, in part, are classified as non-exempt under the state's wage and hour law and those employees whose annual earnings exceed the medium income for a four-person family under the U.S. Census Bureau's standards. Or. Rev. Stat. §653.295 (2020). Washington has passed legislation making non-compete agreements unenforceable against employees making less than $100,000 annually or independent contractors earning less than $250,000 annually, to be adjusted per annum for inflation. Wash. Rev. Code §§49.62.005-900 (2020).

Illinois had similarly prohibited non-compete agreements for certain low-wage employees a few years prior to the recent states. 820 Ill. Comp. Stat. §§90/1–90/10 (2017). On Feb. 6, 2020, even more progressive legislation was introduced in Illinois to amend the existing law to prohibit employers from entering into covenants not to compete with any employee not just the low-wage earners. H.B. 4699, 101st Gen. Assemb., Reg. Sess. (2020). If this proposed legislation passes in Illinois, other states may take notice.

Action at the federal level, with the Freedom to Compete Act, introduced in the Senate in January 2019 by Sen. Marco Rubio, also proposes to restrict the use of non-compete agreements against lower wage earners. See Freedom To Compete Act, S. 124, 116th Cong. (2019-2020). The proposed legislation is primarily aimed at protecting non-exempt employees by amending the Fair Labor Standards Act to prevent employers from using or enforcing non-compete agreements against these workers, including agreements entered into both before and after enactment. Id. at §8(b)(1)-(2). However, the bill would not prevent employers from requiring non-disclosure of trade secrets. Id. at §8(c). In January, the bill was read twice then referred to the Committee on Health, Education, Labor, and Pensions. In November 2019, hearings were held through the Committee on Small Business and Entrepreneurship. Additionally, in March 2019, a number of bi-partisan Senators submitted a letter to the Comptroller General at the U.S. Government Accountability Office requesting a review of the impact of non-competition agreements on workers in the United States and on the economy as a whole." Letter from Sen. Christopher Murphy, et al., Senators, U.S. Senate, to Hon. Gene Dodaro, Comptroller Gen., U.S. Gov't Accountability Office (March 7, 2019).

Faced with the current pandemic, a change to the law of competition in New York should perhaps be considered. There was hope for change in 2017 when Bill A7864A was proposed by the New York Attorney General's Office which would restrict non-compete agreements for any employees earning under $75,000 a year, amended annually to account for inflation. See A7864-A, 2017 Leg., Reg. Sess. (N.Y. 2017). The bill also required the non-compete agreement be provided to the employee by the earlier of a job offer or thirty days before it goes into effect; that the non-compete would no longer be enforceable if the employee was terminated without cause; and employees that seek to invalidate any noncompete that violates the proposed statute would have a private cause of action. Id. This bill was ordered to a third reading in January 2018, and no further action has been taken on it since. In 2018, the New York Attorney General's office reached a settlement with the WeWork company concerning non-compete agreements which the company required almost all of its employees to sign without regard to the employees' salaries, scope of responsibilities, or awareness of confidential information. Eddie Small, WeWork Revises Non-compete Agreements after Settlement with NY AG, The Real Deal NY (Sept. 18, 2018). As a result of the settlement nearly 800 employees were released from their contracts providing more hope for change.

Prior to these developments, in July 2017, the New York City Council also introduced its first ever legislation, potential city ordinance Introduction 1663, regarding restricting non-competes. Introduction 1663 would have prevented New York City employers from entering into non-compete agreements with any "low-wage" employee—defined as any nonexempt employee, other than manual workers, railroad workers or commission salespersons, earning less than $900 a week. New York City employers would have also been prohibited from requiring any potential employees to enter into a noncompete agreement unless, at the beginning of the hiring process, the employer disclosed in writing to the prospective employee that they may be subject to the non-compete. Currently, New York state does prohibit non-compete agreements for employees of state-based media companies through the Broadcast Employees Freedom to Work Act signed into law in August 2008. Broadcast Employees Freedom to Work Act, N.Y. Lab. Law §202-k (2008). The recent crisis in New York highlights the necessity for this type of action in other areas of the state's workforce as well.

Despite the failure to pass legislation restricting non-compete agreements, courts in New York have held that non-compete provisions are generally disfavored and will be enforced only to the extent that they are reasonably necessary and narrowly tailored. See BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999). Courts consider a restraint as reasonable only if it is no greater than is required for the protection of the legitimate interest of the employer, does not impose undue hardship on the employee, is not injurious to the public, and is reasonably limited both temporally and geographically. Id. Protectable interests of an employer include customer relationships; trade secrets; confidential customer information; and "unique" services. See Reed, Roberts Assoc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976). The larger issue, however, is not the standard that courts consider in making the determination but the impact that the lack of an outright prohibition on these types of agreements has on lower wage earners. In the job search, employees with non-competes are at a disadvantage in the interview process. If an employee is hired by a company, despite the non-compete, the employee's former company will likely send a cease and desist letter to the former employee, and potentially to their new employer, threatening legal action. At this point, if an employee is hired by a new company, the employment relationship is disrupted. The former employer may follow through with a lawsuit, requesting an injunction to prohibit any violation of the non-compete. A lower-wage earner is met with significant financial burdens in defending against such legal action to demonstrate that the non-compete should not be enforced and may simply forgo the employment opportunity. Given the call to action from various states, as well as the current pandemic and ensuing aftermath, it seems that New York should champion change in this area of the law to assist the state's most vulnerable workers.

Now more than ever, employers must be held accountable for looking out for their employees' best interests. Even if they must face the difficult decision to lay off or furlough part of their workforce, employers should reconsider pre-existing non-compete agreements during this time of crisis and moving forward.

Kathryn Barcroft is a partner at Solomon Law Firm.