Earlier this week, I wrote an article on our firm’s website about some recent developments regarding partial enforcement of restrictive covenants: New York Employers Could Soon Have More Difficulty Enforcing Restrictive Covenants. The article was primarily based upon a Fourth Department case of Brown & Brown, Inc. v. Johnson, a case that was recently argued at the New York Court of Appeals. Yesterday, the Court of Appeals decided the case. You can read the decision here.
This weekend, I will write a more extensive update about the case on our firms’ website, but there are still a few interesting takeaways to note.
Although partial enforcement under New York law was one of the issues under review, the threshold issue addressed by the Court of Appeals was whether or not to apply a Florida choice-of-law provision. The Appellate Division held that New York law should apply, and the Court of Appeals affirmed that part of the ruling. After an extensive review, comparing the laws of the two states on this issue, the Court held:
Considering Florida’s nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee–in contrast with New York’s requirements that courts strictly construe restrictive covenants and balance the interests of the employer, employee and general public–defendants met their “‘heavy burden’ of proving that application of Florida law [to the non-solicitation provision of the parties’ agreement] would be offensive to a fundamental public policy of this State.”
There have been a number of occasions where I have reviewed non-compete agreements containing choice-of-law provisions from Florida or other more “employer-friendly” states. From now on, it seems very unlikely that such a provision would be enforced absent some significant distinguishing set of circumstances. Employers wishing to enforce restrictive covenants in New York should narrowly tailor them to meet the requirements for enforceability under New York law.
On the issue of partial enforcement, the Court of Appeals reversed the decision of the Appellate Division. But, the Court did so because it believed there were issues of fact that raised questions about whether the employer engaged in overreaching or used coercive dominant bargaining power to obtain the restrictive covenant at issue. That issue was remanded back to the lower courts for further proceedings. Partial enforcement is not assured, and employers should be concerned about the apparent trend by courts to decline to partially enforce over-broad restrictive covenants.
I’ve never eaten at Jimmy John’s, but they must have some incredible sandwiches, made with either top secret ingredients or through a confidential process (or both!). It turns out that this sandwich chain requires its hourly workers to sign non-compete agreements, prohibiting its employees from working for a competitor for two years(!) after leaving Jimmy John’s. I don’t know how I missed that, but it was apparently widely reported back in October, in Business Insider and the New York Times, among other publications.
According to the New York Times article, this isn’t really all that uncommon, as more and more employers are requiring low- and moderate-wage workers to sign these agreements. But, it seems to me very unlikely that these agreements would be enforceable in New York. Plus, given the expense of enforcement, it is doubtful that any employer would truly think it worth the cost of litigating these agreements. But, a low-wage under threat of litigation and unable to afford a lawyer to defend them in such an action may not know that, and feel trapped in their current job.
In New York, these agreements are more common among professionals, executives, and higher-paid salespersons with access to confidential business-related information. And, even in those situations enforcement is not a sure thing. Restrictive covenants in employment—also referred to as non-compete clauses—are generally not favored, and will be enforced by the courts only to the extent they are reasonable and necessary to protect legitimate business interests, such as the protection of an employer’s trade secrets or confidential customer lists, or protection from an employee whose services are unique or extraordinary. Courts have also held that employers have a legitimate interest in preventing former employees from exploiting the goodwill of a client or customer, which had been created and maintained at the employer’s expense, to the employer’s competitive detriment. What legitimate interest would a sandwich chain have to justify preventing one of its sandwich-makers from leaving and working for a competitor?
This may all be moot if Congress passes the Mobility and Opportunity for Vulnerable Employees (MOVE) Act (not to be confused with the Military and Overseas Voter Empowerment Act). According to the press release issued by one of the sponsors, the legislation:
will enable low-wage workers to seek higher-paying jobs without fearing legal action from their current employer. The MOVE Act will ban the use of non-compete agreements for employees making less than $15 an hour, $31,200 per year, or the minimum wage in the employee’s municipality, and will require employers to notify prospective employees that they may be asked to sign a non-compete agreement.
According to the press release, it is estimated that 8-15% of low-wage workers are asked to sign non-compete agreements in an effort to dissuade those workers from seeking better, higher-paying jobs within the same industry. Although such agreements in these contexts may ultimately prove to be unenforceable in many jurisdictions, passage of the MOVE Act would remove any doubt with respect to these employees.
For more information about restrictive covenants and some recent developments in New York law, I invite you to read the latest posting on our firm’s website: New York Employers Could Soon Have More Difficulty Enforcing Restrictive Covenants.
The Urban-Suburban Interdistrict Transfer Program has been in the news quite a bit lately, as several suburban Monroe County school districts consider whether to join the Program, which permits minority students from the Rochester City School District to transfer to suburban school districts. This evening the Spencerport Central School District voted to become the eighth suburban district to join the program. According to the Democrat and Chronicle, at least three more suburban districts are considering whether to join as well.
One of the most rewarding cases I worked on early in my career was Brewer v. West Irondequoit Central School District, 212 F.3d 738 (2d Cir. 2000), a case upholding the Urban-Suburban Interdistrict Transfer Program. This evening, I dusted off my copy of our brief, and flipped through the pages of the Joint Appendix. Here are some interesting facts from the case as they existed at the time of the appeal:
- The Program began in 1965, with the voluntary transfer of 25 minority students from a predominantly minority Rochester City School District school to the predominately white West Irondequoit Central School District.
- Program participating involved a voluntary commitment by each suburban district, and the decision-making process was typically accompanied by vigorous political debate, and the public airing of racial attitudes and prejudices.
- The Program survived an early legal challenge in Etter v. Littwitz, 47 Misc. 2d 473 (Sup. Court Monroe County 1965), aff’d, 28 A.D.2d 825 (4th Dep’t 1966), as well as funding cuts and recurring political opposition to its state funding.
- Over time, the Program expanded to include more transferring students and additional participating suburban school districts. At the time of the appeal, six suburban districts participated in the Program: Brockport, Penfield, Brighton, Pittsford, Wheatland-Chili, and West Irondequoit. Subsequently, Fairport joined the Program, and as noted above, Spencerport has decided to join.
- The Program operates and is funded pursuant to State legislative and State Education Department authorization. This was true at the time of our appeal, and I believe it to be true today.
- Program literature and historical news accounts in the record report that the Program was the first such voluntary inter-district desegregation effort in the United States.
- At the time of our appeal, the Program was the only one of its kind in New York State.
- The Program was not established, nor was it administered to permit a select group of students to attend a “better school” based on their superior academic achievement or intelligence. Rather, the goal and purpose of the Program as specified by the State Education Department was “to promote a reduction in racial isolation in the elementary and secondary schools of the State.”
- Although the “outbound” component of the Program generates the most press, at the time of our appeal there was also an “inbound” component to the Program, whereby non-minority students may transfer from participating suburban districts to attend school in Rochester. According to information in the record, approximately 29 suburban students transferred inbound to attend a Rochester City School District school for the 1996-97 school year, and 50 students did so for the 1998-99 school year.
- During the then-30 years of its existence, the Program received high praise and commendations from numerous people, including a sitting U.S. President, federal and state legislators, members of the New York Board of Regents and State Education Department officials, local school superintendents and administrators, teachers, parents, and students.
- In celebration of the Program’s 20th Anniversary, President Ronald Reagan congratulated the Program, noting:
For two decades your voluntary program has provided an opportunity for thousands of students to learn and grow in a multi-cultural environment. It has broadened their horizons and promoted high student achievement and academic excellence.
-President Ronald Reagan, February 24, 1986 (Joint Appendix on Appeal at A-152).
In upholding the Program, the Second Circuit held “that a compelling interest can be found in a program that has as its object the reduction of racial isolation and what appears to be de facto segregation.” Brewer, 212 F.3d at 752.
As these young children from Rochester begin their education in Spencerport (and any other district joining the Program), I hope that they will be welcomed by their new peers–including many whose parents may have been opposed to joining the Program. Although society continues to struggle with whether or not voluntary desegregation programs like this are constitutionally permissible, many people believe that all of these children–whether from the suburbs or the city–will benefit from interactions with other children from different backgrounds.
Two weeks ago, I wrote about two recent amendments to the Wage Theft Protection Act. One of those amendments eliminated the annual wage notice that employers were required to provide employees.
One of the problems identified by the Governor when he approved these amendments was the fact that the changes were not effective until 60 days after signed. The problem with that effective date (for 2015 at least) was that the notice required employers to provide the annual wage notices no later than February 1, 2015.
Thankfully, legislative leaders and the Governor have agreed to a chapter amendment to make this change effective immediately: “Accordingly, given the pending enactment of this chapter amendment, the Department will not require annual statements in 2015.” You can see the notice for yourself here.
Talk about good timing. Tomorrow I am scheduled to conduct my staff reviews. That’s one less thing I have to prepare tonight.
As I wrote in a post earlier today [Annual Notice Provision Eliminated From Wage Theft Prevention Act], Governor Cuomo signed legislation yesterday amending certain provisions of the Wage Theft Prevention Act. In addition to eliminating the annual notice provision, the amendments enhance certain penalties and make it easier to pursue repeat violators who attempt to evade the provisions of the act by setting up new businesses with similar operations and ownership.
One of the other significant provisions of this legislation [L.2014, ch.537], is the inclusion of an amendment to the New York Limited Liability Company Law. The amendments now impose personal liability on the members of a limited liability company with then ten largest ownership interests for the failure of the company to pay the wages of its employees. These amendments are similar to provisions already contained in the New York Business Corporation Law. Although the liability is also joint and several, employees wishing to take advantage of these provisions must first satisfy certain conditions, including providing written notice to the member against whom a claim will be made.
Over the last several years, the Legislature has made it a priority to protect employees from employers who fail to pay wages. These amendments are part of that effort, and the they simply bring the provisions of the Limited Liability Company Law more in line with the provisions that already apply to most other business entities in New York.
In January, I wrote about the notice requirements of the Wage Theft Prevention Act that apply to both new employees and existing employees. [See Employers: Do Not Forget Your Annual Employee Wage Theft Prevention Act Notice]. The Act required employers in New York to provide all new employees with a written notice setting forth the employee’s rate of pay and other pay-related information. The Act also required employers in New York to provide another written notice containing the same information to all other employees annually, before February 1 of each year.
Not surprisingly, the annual notice provision was roundly criticized by employers and business groups across the state because of the administrative burden and expense imposed on employers. The Rochester Business Alliance noted that the required written notice contained the same information that employees already receive on their paystubs.
Earlier this year, the Legislature passed an amendment to the Wage Theft Prevention Act, eliminating the annual notice requirement, and yesterday, Governor Cuomo signed the bill into law (L.2014, ch.537). The amendments also increase certain penalties for non-compliance and include provisions making it easier to establish successor liability against employers who attempt to evade the provisions of the law by purporting to set up new companies.
In his approval memorandum, the Governor noted that he was signing the bill into law, even though there were some technical and substantive problems that will need to be addressed. I would expect the Legislature to act on these issues early in the new year.
I am once again looking forward to speaking at the Western New York Fire District Officers Legislative Association Workshop in Batavia, New York, on September 27, 2014. As I did last year, I wanted to write a short post as a resource for those attend. Unfortunately, several of the documents I intended to reference (with links) are publications of the New York State Comptroller’s Office, and that website seems to be unavailable at the moment.
Although there will be a lot of important topics covered by the panelists, I will focus my remarks on two areas: (1) recent amendments to the procurement statutes; and (2) a general discussion of the Nonprofit Revitalization Act of 2013, and its applicability to volunteer fire companies.
Last year, I spent quite a bit of time discussing the expanded “piggybacking” exception to competitive bidding in New York. Shortly after last year’s conference, the statute was amended again to further expand this exception to include contracts awarded on the basis of “best value” in a manner consistent with New York’s bidding statutes. Following this amendment, the Comptroller issued an amended bulletin in November 2013, expanding on its earlier discussion. There is a link to the bulletin in my post from last year, and it should bring you to the updated bulletin.
Shortly before the Nonprofit Revitalization Act of 2013 became effective on July 1, 2014, one of my colleagues wrote an excellent summary of the key provisions of the Act. A copy of the article, Nonprofit Best Practices Now Mandatory, may be downloaded by following the link. If you would like to have one of our attorneys review your company’s bylaws and make recommended changes to ensure compliance with the Act, please feel free to contact me.
Thank you for visiting my blog. I hope you consider subscribing by email, liking my page on Facebook, or following me on Twitter. you may also want to subscribe to our firm’s email newsletter, In Confidence, here. You can subscribe to only the topics you are interested in, and from time to time, I write about developments impacting New York municipalities, including fire districts.
Yesterday, the New York Court of Appeals–New York’s highest court–decided an important land use case involving town-wide restrictions prohibiting hydraulic fracturing, also known as hydrofracking. The case has been widely reported in the media, but I think it is worth reading the actual decision because it contains a good discussion of preemption in the context of a municipality’s home rule authority to regulate land uses. You may read it here: Matter of Wallach v. Town of Dryden (2014 NY Slip Op 04875).
In upholding the home rule authority to prohibit hydrofracking, the Court held:
At the heart of these cases lies the relationship between the State and its local government subdivisions, and their respective exercise of legislative power. These appeals are not about whether hydrofracking is beneficial or detrimental to the economy, environment or energy needs of New York, and we pass no judgment on its merits. These are major policy questions for the coordinate branches of government to resolve. The discrete issue before us, and the only one we resolve today, is whether the State Legislature eliminated the home rule capacity of municipalities to pass zoning laws that exclude oil, gas and hydrofracking activities in order to preserve the existing character of their communities. There is no dispute that the State [*12]Legislature has this right if it chooses to exercise it. But in light of ECL 23-0303 (2)’s plain language, its place within the OGSML’s framework and the legislative background, we cannot say that the supersession clause — added long before the current debate over high-volume hydrofracking and horizontal drilling ignited — evinces a clear expression of preemptive intent. The zoning laws of Dryden and Middlefield are therefore valid.
Matter of Wallach, 2014 NY Slip Op 04875 at *11-12 (2014).
The New York Nonprofit Revitalization Act of 2013 resulted in a number of significant changes to the New York Not-For-Profit Corporation Law. Many of those changes are effective as of July 1, 2014. My colleagues in our firm’s business department just published an excellent article summarizing the new requirements, and outlining what nonprofit board members must do to ensure that the organization they serve remains in compliance. Please share this information with anyone you know who serves on a nonprofit board.
Here is a link to the article: Nonprofit Best Practices Now Mandatory.
For more information about this or the other services provided by our firm, please feel free to contact me.
Reminder: Open Meetings Law Now Requires Prior Disclosure of Agendas, Proposed Resolutions, and Other Documents
A little over two years ago, I wrote about an amendment to New York’s Open Meetings Law requiring prior disclosure of documents scheduled to be discussed at a meeting of a public body. As of February 2, 2012, the Open Meetings Law requires public bodies to make certain documents–including agendas as well as any other document scheduled to be discussed at a public meeting–available before or during the meeting when they will be discussed.
Documents, such as proposed resolutions, laws, rules, regulations, policies or any amendments thereto that are scheduled to be discussed during an open session of a public meeting, should be made available upon request “to the extent practicable as determined by the agency or department” prior to or at the meeting during which the records will be discussed. For more information about the requirements imposed by this amendment, please see my earlier article here.
I’ve had this issue come up several times in the last month or so, and wanted to be sure that my municipal clients are aware of this relatively new requirement. Failure to comply with this or any other requirement of the Open Meetings Law could result in a court voiding any action taken, and the public body may be required to pay attorney’s fees and attend a training session on the requirements of the Open Meetings Law sponsored by the Committee on Open Government.