New York Bars Certain Non-Competes in the Broadcasting Industry
August 12, 2008
On August 6, 2008, New York Governor David A. Paterson signed the Broadcast Employees Freedom to Work Act into law, effective immediately.1 The legislation, which will be codified as New York Labor Law Section 202k, prohibits employers in the broadcast industry from requiring that their employees sign post-employment noncompetition agreements as a condition of their employment.
This new law represents an industry-specific exception to the enforcement of reasonable non-competes in New York. Outside the broadcasting industry, reasonable noncompetition agreements remain generally enforceable in New York, so long as the restrictive covenant: (1) is no greater than necessary for the protection of the employer's legitimate interests; (2) does not impose undue hardship on the employee; and (3) does not injure the public.
"Broadcasting Industry Employer" Defined
The new legislation applies only to broadcasting industry employers, defined to include: (1) television stations or networks; (2) radio stations or networks; (3) cable stations or networks; (4) Internet or satellite-based services similar to a broadcast station or network; (5) any broadcast entities affiliated with any of the television, radio, cable, Internet, or satellite-based employers previously identified; and (6) any other entity that provides broadcasting services such as news, weather, traffic, sports, or entertainment reports or programming.
Scope of the Broadcast Employees Freedom to Work Act
The Broadcast Employees Freedom to Work Act applies to both on-air and off-air employees of broadcasting industry employers, although management employees specifically are excluded from coverage. The term "management employees" is not defined in the statute. As a result, the meaning and scope of this exclusion is likely to be the subject of litigation.
The statute prohibits broadcasting industry employers from requiring, as a condition of employment, that any non-management employee refrain from obtaining employment (1) in any specified geographic area, (2) for any specified period of time, or (3) with any particular employer, or in any particular industry. A broadcasting industry employer may subject an employee to any of these restrictions during the term of an employment contract, but cannot do so after the conclusion of employment.
Employers violating the statute are liable for damages to the employee, as well as attorneys' fees and costs. The protections provided by the new law cannot be waived.
Protecting Employers' Legitimate Interests under the Broadcast Employees Freedom to Work Act
The Broadcast Employees Freedom to Work Act alters the landscape for broadcast industry employers seeking to protect their investment in certain broadcasting employees, including on-air personalities. Nevertheless, broadcasting industry employees can—and should—consider taking steps to protect their legitimate interests in the face of this new legislation.
- Existing contracts should remain enforceable
The general rule in New York is that statutes are to be construed as prospective only, absent clear legislative intent to the contrary. Where the language of a statute specifically directs that it is to take effect immediately, as it does in this case, the statute does not have any retroactive effect. As a result, courts should fully enforce noncompetition contracts currently maintained by broadcast industry employers, so long as those agreements otherwise comply with New York law. However, contracts entered into on or after August 6, 2008, will be covered by the new legislation.
- Restrictions on competition during employment are valid
Under the express terms of the legislation, broadcasting industry employers can prohibit employees from competing during the term of their employment contract, including refraining from obtaining employment in any specific geographic area, for any specified period of time, and with any identified, particular employer or in any particular industry.
- Non-competes can be conditioned on employment benefits or severance
Based on the literal language of the new law, broadcasting industry employers may offer noncompetition arrangements to employees, and employees may accept those restrictions, so long as the agreement is not conditioned on employment. Thus, noncompetition provisions that are conditioned on an employment benefit, such as the payment of a special bonus or a new stock option grant, may be outside the scope of the new law's prohibition on noncompetition agreements. For the same reason, a noncompetition provision contained in a post-employment contract that is negotiated at the conclusion of employment, such as a severance agreement, should not be affected by the new law since the restrictive covenant would not be conditioned on the employee's continued employment.
- Term employment contracts may be used by employers
According to the specific language of the statute, broadcasting industry employers may apply restrictions to non-management employees during the term of an employment contract. This means that carefully drafted term employment contracts, which restrict competition during the course of the term, now may become more prevalent for both on-air and off-air employees in the broadcasting industry. These employment contracts also may continue to contain other limitations during the term of employment that fall short of straight-out non-competes. Under certain circumstances, other permissible limitations may include requiring that employees provide their employers with a right of first refusal or a period of good faith negotiations before seeking employment elsewhere.
- Intellectual property and nonsolicitation provisions should be implemented
Alternative means can be used to protect an employer's interests where noncompetition provisions are prohibited, including strong language governing the non-use and non-disclosure of company trade secret and confidential information.
Similarly, nothing in the Broadcast Employees Freedom to Work Act prohibits broadcasting industry employers from continuing to rely on well-established nonsolicitation provisions prohibiting former employees from soliciting an employer's customers, clients, and/or employees for a reasonable time after the conclusion of employment. Carefully drafted nonsolicitation provisions may continue to be an effective tool for protecting an employer from unfair competition, particularly with respect to sales employees and other employees who have a high level of customer contact or other ready access to the employer's confidential and trade secret information.
In the wake of the Broadcast Employees Freedom to Work Act, a number of practical steps should be considered by broadcasting industry employers. Broadcasting industry employers should closely scrutinize and modify their existing form noncompetition agreements to ensure that, on a going-forward basis, their covenants do not run afoul of this new legislation. Broadcasting industry employers also should consider other means of protecting their legitimate interests. This may include using term employment contracts, conditioning non-competes on other employment benefits, using nonsolicitation provisions, and including strong trade secret and confidential information provisions.
Wilson Sonsini Goodrich & Rosati routinely counsels clients regarding the drafting and enforcement of, and defense against, noncompetition agreements and other related issues, including any related litigation. If you have any questions regarding these topics, please contact Marina Tsatalis or Amy Todd in the firm's New York office.
1 New York Assembly Bill 2124/Senate Bill 2393. The full text of the legislation is available at: http://assembly.state.ny.us/leg/?bn=S02393&sh=t