United States: Employment Developments And Considerations At The Start Of 2015

  • The New York Wage Theft Prevention Act's Annual Notice Requirement Is Rescinded Effective Immediately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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.