What does potential ban on non-compete agreements mean going forward?
January 22, 2024
In recent years, the validity and enforceability of non-compete agreements have come under scrutiny in various jurisdictions. Four states have banned the use of non-compete agreements, and New York was poised to become the fifth state, with Senate Bill s3100A awaiting the signature of Gov. Kathy Hochul. New York’s law would have been an outright ban on the use of non-compete agreements, making it one of the most stringent in the nation.
Gov. Hochul had said she was considering allowing the continued use of non-compete agreements for employees earning $250,000 or more annually. However, the effort to revise the bill and allow non-competes to continue to be used for high-earning workers did not result in an agreement, leading Governor Hochul to veto the bill last week.
What does this mean for employers who utilize non-compete agreements as a vital tool for protecting their business interests? It means that in New York State, it is business as usual – for now. However, backers of the bill say they will reintroduce the legislation in the spring, likely with some of the concessions Hochul was seeking. So, while employers may continue to utilize non-compete agreements in New York, it feels like a matter of time before that use is restricted.
As such, it is worthwhile for employers to explore alternative strategies to protect their assets and retain a competitive edge in the market. A few things to consider in lieu of a traditional non-compete agreement:
Confidentiality and Non-Disclosure Agreements (NDAs): One of the most effective ways to safeguard a company's proprietary information and trade secrets is through confidentiality and non-disclosure agreements. Unlike non-compete agreements, NDAs are viewed more favorably by lawmakers and have a greater chance of being enforceable. By signing an NDA, employees agree to keep any confidential information they obtain during employment confidential, even after leaving the company. Utilizing strong NDAs provides companies with legal protection against unauthorized dissemination of sensitive information.
Intellectual Property (IP) protection: Companies can focus on strengthening intellectual property rights to safeguard innovations and technology. Patents, copyrights, and trademarks offer strong legal protection by granting exclusive rights to the company. By registering these rights, companies can prevent competitors from copying or using their inventions, designs, or brand logos. Robust IP protection is essential for companies that rely heavily on innovation.
Trade Secret Protection: Trade secrets encompass valuable information such as manufacturing processes, formulas, customer lists, and marketing strategies that are not publicly known and provide a competitive advantage to the company. While trade secrets enjoy legal protection without formal registration, companies must take necessary steps to classify and protect this confidential information within their organization. Implementing stringent access control measures, limiting disclosure on a need-to-know basis, and having employees sign agreements acknowledging the confidential nature of trade secrets can help strengthen this protection.
Employee and Customer Relationships: Many employers do not think of this as a tool to protect their business, but building strong relationships with employees and customers can help companies remain competitive and resilient. By creating a positive working environment and offering meaningful incentives such as development programs and competitive compensation and benefits, companies can improve employee satisfaction and reduce turnover. Providing exceptional customer service and maintaining strong relationships with clients can also reduce the likelihood of customers switching to a competitor, even if former employees join a rival company.
Non-Solicitation Agreements: Non-solicitation agreements are another alternative to protect a company’s customer base. These agreements prohibit departing employees from actively soliciting or poaching customers or clients. By enforcing non-solicitation agreements, companies can prevent a former employee from leveraging their relationships with clients or customers.
Garden Leave: Implementing garden leave policies can be an effective strategy to combat the banning of non-compete agreements. Under garden leave, once an employee has given notice, he or she is placed on paid leave for the duration of their notice period, preventing them from working during that time and potentially sharing sensitive information with a competitor. This strategy allows companies to secure their assets and guard against an employee removing files or other customer data to move with them to their new organization.
As the debate around non-compete agreements continues, we advise clients to explore these alternative strategies to protect their valuable assets and maintain a competitive advantage in the marketplace. Utilizing confidentiality and non-disclosure agreements, strengthening intellectual property rights, safeguarding trade secrets, building strong employee and customer relationships, implementing non-solicitation agreements, and considering gardening leave policies can offer companies a range of options to shield themselves from potential harm and maintain their market position.
If you would like to discuss any of these options and how they might benefit your organization, please give myself, or any member of our labor and employment team a call.
Kevin Burke counsels employers on recent developments in employment law, and the implementation of policies and procedures which enable employers to be in compliance with federal and state laws. He can be reached at 716-854-4300 ext. 292 or kburke@gross-shuman.com
