- The New York Wage Theft Prevention Act's Annual Notice Requirement Is Rescinded Effective Immediately
- Employers May No Longer Be Able to Depend on New York Courts to Revise Overly Broad Restrictive Covenants
- EEOC's Heightened Scrutiny of Separation Agreements
Critical Amendments to New York's Wage Theft Prevention Act Are Now Law, Eliminating the Annual Notice Requirement Effective Immediately
On December 29, 2014, Governor Andrew Cuomo signed into law a
bill that amends the N.Y. Wage Theft Prevention Act
("WTPA").
As we have previously reported, the amendments to the WTPA were
passed by the New York State legislature on June 19, 2014, and were
awaiting Governor Andrew Cuomo's signature. The new law repeals
the requirement that employers send annual WTPA wage rate and pay
date notices to current employees between January 1 and February 1
of each year. According to the signing memorandum issued by
the Governor's office, the annual notice requirement for
employers is eliminated for the 2015 calendar year.
Moreover, an announcement on the N.Y. Department of Labor's
website provides that the Department will not require annual
statements in 2015.
As for the other amendments to the WTPA, including the amendment
to increase penalties for violations of the wage payment
provisions, the amendment to the limited liability company law to
provide for liability for individual members, and the amendments to
the N.Y. Finance Law to create a "Wage Theft Prevention
Account," these amendments will take effect February 27,
2015.
Employers Can No Longer Rely on New York Courts to Save Overly Broad Restrictive Covenants
New York courts have traditionally bailed out employers by
narrowing, rather than voiding, restrictive covenants found to be
unreasonable and overboard. In such instances, courts would revise
or "blue-pencil" the covenant, striking out or modifying
the overly broad components, so that the covenant could be
enforced.
However, several New York decisions issued last year suggest a
trend in which courts are moving away from
"blue-penciling" overly broad restrictive covenants, and
instead are striking them entirely.
In Brown & Brown,1 New York's appellate court
refused to blue-pencil an employment agreement that contained an
overly broad non-solicitation provision. The non-solicitation
provision did not distinguish between clients with whom the
plaintiff acquired relationships during her employment and those
with which she did not. Thus, when Brown & Brown tried to
enforce this provision against the employee following her
termination, the court determined that the provision was overbroad
and unenforceable.
The court explained that blue-penciling should not be undertaken
as a matter of standard procedure. Relying on the seminal 1999
Court of Appeals case in BDO Seidman governing enforceability of
restrictive covenants2, the court stated that partial
enforcement of an overbroad restriction may only be justified where
"the employer demonstrates an absence of overreaching,
coercive use of dominant bargaining power, or other
anti-competitive misconduct, but has in good faith sought to
protect a legitimate business interest, consistent with reasonable
standards of fair dealing."
Similarly, a New York federal court in Veramark Technologies v.
Bouk3, refused to blue-pencil an overbroad non-compete
provision. The restriction at issue in Veramark prohibited a former
employee from "directly or indirectly performing services for
any enterprise that engages in competition with the business
conducted by Veramark or its affiliates." The court refused to
modify this restriction since "[o]n its face, the non-compete
is overreaching and coercive, and partial enforcement would not be
appropriate."
Citing Brown & Brown, the court explained that blue-penciling
the restrictive covenant would allow employers to "use their
superior bargaining positions to impose unreasonable
anti-competitive restrictions, uninhibited by the risk that a court
will void the entire agreement."
The court rejected Veramark's argument that the restriction
was necessary in order to protect "customer goodwill,"
finding that the agreement's non-solicitation provisions
adequately provided this protection. This aspect of the decision is
particularly noteworthy since, while the court refused to
blue-pencil the non-compete restriction, it severed this provision
and enforced the other restrictive covenants in the
agreement.
What This Means for You
Given the recent trend against blue-penciling, New York employers
should review their restrictive covenants to ensure they are
narrowly tailored and consistent with the standards of
enforceability:
- Client-based restrictions must distinguish between those clients with which the employee developed a relationship due to his or her employment -- which are enforceable -- as opposed to clients with which the employee had a pre-existing relationship or never acquired such a relationship -- which are much less likely to be enforced.
- Restrictions should be agreed to in "good faith." Employers should avoid presenting restrictive covenant agreements to an employee on his or her first day of work, after the employee has already resigned from his or her prior employment.
- When drafting restrictive covenant agreements, each restriction (e.g. non-competition, client non-solicitation, employee non-solicitation) should be set forth in a stand-alone provision so that, in the event a court refuses to blue-pencil an unenforceable restrictive covenant in the agreement, the separate restrictions may still be enforced.
The EEOC's Recent Focus on Overbroad Releases
Two lawsuits filed by the Equal Employment and Opportunity
Commission ("EEOC") in 2014 highlight the agency's
recent focus on challenging separation agreements that discourage
or prohibit individuals from exercising their rights to file
charges of discrimination and to participate in EEOC investigations
or enforcement efforts.
CVS and CollegeAmerica
In February 2014, the Chicago District Office of the EEOC filed a
lawsuit in Illinois federal court against CVS Pharmacy, Inc.,
alleging that a severance agreement used by the company was
"overly broad, misleading and unenforceable"
("CVS"). The EEOC argued that the agreement violates
Title VII because it interferes with the employees' rights to
file charges, communicate voluntarily, and participate in
investigations with the EEOC. In the CVS case, the EEOC challenged
several "standard" provisions:
- A cooperation clause requiring the employee to notify the company's general counsel of any interview request or "inquiry" relating to legal proceedings including an "administrative investigation;"
- A non-disparagement clause prohibiting the employee from making any disparaging statements about the company and its officers, directors and employees;
- A non-disclosure clause, prohibiting the employee from disclosing any "confidential information" about the company to any third party without prior written permission;
- A general release provision, releasing all claims including "any claim of unlawful discrimination of any kind...;" and
- A covenant not to sue clause prohibiting the filing of "any action, lawsuit, complaint or proceeding" asserting the released claims, and requiring the employee to promptly reimburse "any legal fees that the Company incurs" for breach of the covenant not to sue. This provision also included a carve out, stating that nothing contained in the covenant not to sue was "intended to or shall interfere with Employee's right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation."
The EEOC maintained that these provisions violate Title VII
because they interfere with the employee's ability to
communicate voluntarily with the EEOC and other enforcement
agencies. Significantly, the EEOC noted that the above
referenced carve out in the covenant not to sue was insufficient
since it is not repeated anywhere else in the agreement.
In late April 2014, the Phoenix District Office of the EEOC sued
CollegeAmerica Denver, Inc. in Colorado federal court, making
similar allegations as those raised in the CVS case ("College
America"). The EEOC argued that provisions of
CollegeAmerica's severance agreements requiring release of
claims, cooperation with the company, and non-disparagement violate
the Age Discrimination in Employment Act because those provisions
allegedly "chill" the rights of individuals to file
charges of discrimination and participate in EEOC and state agency
investigations.
The Decisions: EEOC's Claims Challenging The
Separation Agreements Are Dismissed
In October 2014, the court in the CVS case granted CVS' motion
to dismiss, dismissing the EEOC's lawsuit against CVS in its
entirety. The court dismissed the EEOC's claims against CVS
since it determined that the EEOC failed to engage in conciliation
procedures which were required under Title VII. Since CVS was
dismissed on procedural grounds, the court did not make a specific
ruling on the substance of the EEOC's claim. The EEOC has filed
an appeal of the court's decision to the Seventh Circuit Court
of Appeals. The appeal remains pending.
On December 2, 2014, the court in the CollegeAmerica case
dismissed the EEOC's claims relating to the company's
separation agreement. The court found that the EEOC failed to
satisfy its statutory obligation to engage in conciliation efforts.
Like the court in CVS, the court based its decision on procedural
grounds and did not rule on any of the EEOC's substantive
claims. The court permitted the EEOC's retaliation claims,
alleging that CollegeAmerica's lawsuit was filed in retaliation
for the employee's breach of the settlement agreement, to
proceed.
What This Means for You
With the CVS case and the CollegeAmerica case, the EEOC has shown
a continued willingness to challenge separation agreements that, it
asserts, chill employees' rights to file charges and that
discourage employees from cooperating with investigations. It
is expected that the EEOC's effort will continue.
While CVS and CollegeAmerica successfully defended the EEOC's
claims, neither case addressed the merits of the EEOC's
challenges regarding the validity of standard provisions used in
separation agreements.
Therefore, until this issue is resolved on the merits, we
recommend that employers review their separation agreements and
releases and take the following actions:
- Review provisions which preserve the employee's right to file administrative charges and participate in agency investigations. To avoid potential claims, we recommend that this provision specifically preserve the employee's rights to apply to any government agency which enforces any laws (not just the EEOC and NLRB).
- Include a statement of the employee's protected rights in a stand-alone provision of the separation agreement in bold font. Additionally, to avoid any confusion, we recommend that employers begin each paragraph that contains restrictions on an employee's rights (e.g. confidentiality and non-disparagement provisions) with language stating "Except as otherwise provided in paragraph [refer to paragraph protecting employee's right to file charges and participate in investigations]," thereby reiterating that nothing in any section of the agreement restricts those rights.
- Separation agreements should continue to state that, while the employee retains the right to file a discrimination charge, the employee is waiving the right to recover monetary damages or other individual relief in connection with any such charge.
Special thanks to Daniella M. Muller, an associate in the Employment Practice Group, for her assistance preparing this alert.
Footnotes
1 Brown & Brow, Inc. v. Johnson, 115 A.D.3d 162,
980 N.Y.S.2d 631 (4th Dep't 2014).
2 BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712
N.E.2d 1220 (1999).
3 Veramark Technologies, Inc. v. Bouk, 10 F. Supp. 3d 395
(W.D.N.Y. 2014).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.