California’s Governor signed Assembly Bill (AB) 1076 on October 13, 2023, which adds new Business & Professions Code §16600.1, making it unlawful to impose non-compete clauses on employees – which contractual restrictions already are void under Business & Professions Code §16600. Read more.
On September 15, 2023, New York Governor Kathy Hochul signed into law a new section of the New York Labor Law limiting the assignment of inventions by employees to their employers. Specifically, Section 203-f of the Labor Law renders unenforceable provisions in employment agreements that require employees to assign certain inventions to their employer which were developed using the employee’s own property and time. The new law became immediately effective upon Governor Hochul’s signing.
New Labor Law Section 203-f bans the enforcement of invention assignment agreements that entitle employers to intellectual property developed by employees entirely on their own time without using their employer’s equipment, supplies, facilities, or trade secret information; unless the invention relates at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or if the invention results from any work performed by the employee for the employer.
Section 203-f further provides that a requirement in an employment agreement that an employee assign, or offer to assign, any of his or her rights in an invention developed on his or her own time to an employer is against New York State public policy and shall be unenforceable. Notably, Section 203-f does not state that such a provision renders an entire employment agreement unenforceable if it contains such a provision and does not create a private right of action.
The new bill was originally sponsored by New York State Senator Jessica Ramos from the 13th Senate District. State lawmakers approved the legislation in June 2023 after other States, including California, Illinois, New Jersey, and Nevada approved similar protections.
In fact, the bill provides protections similar to California’s Labor Code Section 2870. However, the New York legislation differs from its California counterpart in that California Labor Code Section 2870 includes language that explicitly allows employers to require employees to disclose all inventions employees develop during the term of their employment. California also places a burden on employees to prove that their inventions are not covered by their employee invention assignment agreement.
As a result, employers should review their employment agreements in New York to ensure they comply with the new law and draft any new agreements accordingly. Jackson Lewis attorneys continue to monitor further developments. If you have any questions, the Jackson Lewis Restrictive Covenants, Trade Secrets and Unfair Competition practice group members are available to assist.
On September 1, 2023, Governor Newsom signed Senate Bill (SB) 699, which buttresses current state law that voids contracts that restrain an employee from engaging in a lawful profession, trade, or business of any kind. California’s Business and Professions Code section 16600 states, “[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Read more.
In the world of restrictive covenants, 2023 got off to a hot start when, in early January, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking (NPRM) to broadly ban the use of non-compete covenants nationally. Now, Congress has stepped into the fray, with a bipartisan group of Senators reintroducing a bill that, like the FTC’s proposed rule, would ban non-compete agreements across the country in most circumstances.
The Workforce Mobility Act of 2023
The Workforce Mobility Act of 2023, previously introduced in 2019 and 2021, was reintroduced by Senators Christopher Murphy (D-Conn.) and Todd Young (R-Ind.) and is co-sponsored by Senators Tim Kaine (D-Va.) and Kevin Cramer (R-N.D.). If passed, the Act would codify the use of employment non-competes as an unfair trade practice under federal law. The Act provides that, with certain limited exceptions, “no person shall enter into, enforce, or attempt to enforce a noncompete agreement with any individual who is employed by, or performs work under contract with, such person with respect to activities of such person in or affecting commerce,” and that noncompete agreements will have no force or effect. For a more detailed look at the Workforce Mobility Act of 2023, see our article, Bipartisan Bill to Ban Most Non-Compete Agreements Reintroduced in U.S. Senate.
The FTC’s Proposed Rule
Jackson Lewis previously addressed the details of the FTC’s proposed ban on non-competes in its article, A Deeper Dive Into FTC’s Proposed Non-Compete Rule. Now, Jackson Lewis attorneys Erik Winton, Cliff Atlas, Daniel Doron, and Daniel Thornton take a look at the history leading to the proposed rule, including how the FTC appears to have largely ignored the finding and conclusions presented by outside experts during a January 2020 public workshop, conducted by the Commission to examine the legal basis and empirical support for a rule restricting non-competes. See our article, Against the Evidence: How the FTC Cast Aside the Input of Experts at Its Own Non-Compete Workshop.
Cliff Atlas and Erik Winton also discussed the FTC’s proposed rule during a recent podcast, as part of the Jackson Lewis podcast series, The Year Ahead. That podcast can be found here: The Year Ahead in the Proposed FTC Rule Banning Non-Competes.
On January 5, 2023, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking (NPRM) to broadly ban the use of non-compete covenants throughout the country. The proposed rule, which would supersede all contrary state laws, is remarkable for its sweeping definition of “non-compete clauses” that fall within the ban. Jackson Lewis provided an initial alert on the proposed rule and now undertakes a more thorough review of the proposal, including a summary of what the proposed rule contains; employers and persons excluded from coverage under the proposed rule; the potential implications to employee benefit plans; and the next steps in the rulemaking process. That review may be found here: A Deeper Dive Into FTC’s Proposed Non-Compete Rule.
The Federal Trade Commission (FTC) has issued a Notice of Proposed Rulemaking to broadly ban the use of non-compete covenants throughout the country. The proposed rule, which would supersede all contrary state laws, would extend to “de facto” non-compete clauses, i.e., contractual provisions that have the effect of prohibiting workers from seeking or accepting employment or operating a business after the conclusion of the worker’s current employment.
For a more extensive discussion of the proposed rule, see our Article, Federal Trade Commission Proposes Broad Ban on Use of Non-Compete Covenants.
Having initially enacted a total ban on non-compete agreements that went so far as to ban prohibitions against moonlighting with competitors, the District of Columbia City Council has significantly changed the law’s scope. Details of the amended D.C. “ban,” including how the act permits non-compete agreements for “highly compensated employees,” are laid out the article, D.C. Mayor’s Signature Puts Modified Non-Compete Ban on Track for October 1st Effective Date, written by Jackson Lewis Restrictive Covenant Practice Group members Matt Nieman, Joe Schuler, and Caroline Cheng.
Governor Jared Polis has now signed HB 22-1317, significantly limiting the enforceability of non-compete agreements executed after August 10, 2022 — the law’s effective date — for employers with employees working or living in Colorado. For details of, and a brief Q&A on, the new law, see the articles Colorado Poised to Further Limit Use of Non-Compete Agreements, Raise Penalties for Non-Compliance and Colorado’s New Non-Compete Law Signed by Governor, Will Go into Effect on August 10, 2022, by Jackson Lewis attorneys Tim Kratz and Francis Wilson.
If you have any questions about the new Colorado law, Colorado’s non-compete statute, C.R.S. § 8-2-113, or any other restrictive covenants issue, please contact a Jackson Lewis attorney.
On May 2, 2022, the New Jersey State Assembly introduced Assembly Bill (AB) 3715 that, if enacted, would significantly limit the use and enforceability of certain restrictive covenant provisions, while mandating additional procedural requirements. AB 3715 is similar to prior bills introduced in the New Jersey legislature in recent years, and part of the ongoing effort in the Garden State to drastically alter the non-compete landscape. See New Jersey General Assembly to Vote on Renewed Bill Seeking to Curb Restrictive Covenants; New Jersey Restrictive Covenant Bill Aims to Change the Landscape.
AB 3715 codifies the State’s common law requirement that a restrictive covenant agreement must be no broader than necessary to protect the employer’s legitimate business interests, must not be unduly burdensome on the employee, and cannot be injurious to the public or inconsistent with public policy.
Significantly, the bill includes multiple additional barriers to traditional restrictive covenants that otherwise may be enforceable under current law. For example, under the bill, a restrictive covenant agreement:
- must be disclosed to the employee by the earlier of a formal offer of employment or 30 business days before the commencement of employment or, if the agreement is entered into after commencement of employment, must be provided to the employee at least 30 business days before the agreement is to be effective;
- must be limited to a duration of no more than 12 months following the employee’s termination;
- must be limited to the geographic area(s) in which the employee provided services, or had a material presence, during the two years preceding the employee’s termination, and cannot prohibit the employee from seeking employment in other states;
- must be limited to only the specific types of services provided by the employee during the last two years of employment;
- cannot penalize an employee for defending against or challenging the enforceability of the restrictive covenant(s). The bill is unclear as to whether a restrictive covenant may include a fee-shifting provision in favor of the employer or the prevailing party, where an employer successfully enforces a covenant against a breaching employee;
- cannot contain a choice of law provision that would have the effect of circumventing the bill’s proscriptions (with limited exceptions); and
- cannot prevent an employee from providing a service to the employer’s customer or client, if the employee does not initiate or solicit the customer or client. Whether the employee engaged in an “initiation” or “solicitation” – neither of which is defined in the bill – is an issue that likely will be litigated, especially where an employee engages in arguably subtle or passive conduct.
In addition to the above limitations, AB 3715 establishes several categories of employees against whom a restrictive covenant agreement cannot be enforceable, including:
- an employee who has been terminated without a determination of misconduct;
Under the bill, “misconduct” is defined as “conduct which is improper [and] . . . not a good faith error of judgment or discretion, and is either a deliberate refusal, without good cause, to comply with the employer’s lawful and reasonable rules made known to the employee or a deliberate disregard of standards of behavior the employer has a reasonable right to expect.”
- non-exempt employees, as defined under the Fair Labor Standards Act;
- employees under age 18;
- undergraduate or graduate student interns;
- seasonal employees, temporary employees, or independent contractors;
- low-wage employees, defined as an employee whose average weekly earnings are less than the statewide average; and
- employees employed less than one year.
Additionally, an employer must notify the employee in writing, within 10 days of the employee’s termination, of its intent to enforce a restrictive covenant agreement and must pay the employee 100 percent of the employee’s wages and fringe benefits during the period of enforcement of a restrictive covenant. While these requirements would not apply to terminations for misconduct, they would apply to employee resignations, possibly creating the opportunity for an employee anticipating termination to preemptively resign and invoke application of the notice-and-pay provisions.
Finally, the bill expressly permits an employee to bring a civil action against their employer for alleged violations of the bill’s provisions, within a two-year statute of limitations. The court could then void the agreement and order “all appropriate relief,” including issuing of an injunction against the agreement’s enforcement and awarding of damages and attorneys’ fees.
As noted above, similar bills have been introduced in recent years, as far back as 2017 and most recently in February 2022, when the New Jersey Senate introduced SB 1410. That bill has made no progress since its introduction and it remains to be seen whether AB 3715 will fare any better. Still, employers should be mindful of this most recent legislative effort, as ultimately it could substantially change how they draft their future restrictive covenant agreements. Jackson Lewis will continue to monitor both AB 3715 and SB 1410 and will report on developments as warranted.
In the meantime, if you have any questions about these bills or any other issue regarding New Jersey restrictive covenant law, please contact the Jackson Lewis attorney(s) with whom you regularly work or the author of this post.
The Colorado Senate recently passed House Bill 22-1317 which, if enacted into law, would significantly limit the enforceability of any non-compete agreements executed after the law’s effective date for employers with employees working or living in Colorado. If Governor Polis signs the proposed legislation, it could go into effect as early as August 10, 2022. For more details on the bill, which would amend Colorado’s non-compete statute, C.R.S. § 8-2-113, see the article by Jackson Lewis attorneys Tim Kratz and Francis Wilson, here.