Two employment law topics I follow closely, non-competes and city rule-making in the area of employment law, intersected this summer when it was announced that New York City is considering a local law restricting non-compete agreements. In recent years, there has been a proliferation of city rule-making in the area of employment law, as well as other areas like banning plastic bags and regulating consumption of soda pop. Typical topics for regulation in the employment arena have been paid sick leave, minimum wage, ban-the-box restrictions on background checks, and so-called “fair scheduling” laws. This trend originated on the west coast and quickly spread to the east coast, as over a dozen cities have enacted paid sick leave ordinances. Here in the Midwest, the City of Minneapolis jumped on the bandwagon by passing a paid sick and safe leave ordinance that took effect on July 1, 2017. St. Paul also adopted a paid sick and safe leave requirement that goes into effect on January 1, 2018.
Back to the East Coast: on July 20, 2017, New York City Councilmembers Rory I. Lancman and Helen K. Rosenthal sponsored a proposal for a local law prohibiting employers from requiring low-wage workers to enter into covenants not to compete and also to require all employers in the city to notify potential employees of any requirement to enter into a non-compete. NYC Introduction 1663-2017. “Low wage” is defined as a non-exempt employee earning less than $900 per week. The current proposed language for disclosure to non-low wage workers is: “An employer may not require a potential employee who is not a low-wage employee to enter into a covenant not to compete unless, at the beginning of the process for hiring such employee, such employer disclosed in writing that they may be subject to such a covenant.” The proposal is still under review, but commentators say that, if passed, Mayor Bill De Blasio would be likely to sign it.
Business interests around the country, including in Minnesota, have been critical of cities regulating employment law through local ordinances, in part because it creates a burdensome three-layer set of regulations at the federal, state, and local level for compliance purposes. Part of the compliance burden is the need to track where employees are working and what requirements govern that particular municipality. National employers already struggle with implementing non-competes that comply with the laws of 50 different states. If major cities around the country also implement their own non-compete laws, this challenge would be made exponentially more difficult. The City of New York has an economy larger than about 46 states, so it is not absurd for the City to consider regulation of commercial activities in this fashion, but could it happen in Minnesota?
The new Minneapolis city council and mayor elected earlier this month is as liberal and arguably more activist than the previous administration, and mayor-elect Jacob Frey is a plaintiff-side employment attorney, so the answer is not a clear “no.” A Minneapolis minimum wage ordinance goes into effect in 2018.
Another side to this story is Minnesota’s staunch commitment to enforcing non-competes at a time when the law favoring enforcement of restrictive covenants in New York and other states may be gradually crumbling. The New York State Attorney General sued a number of large employers regarding over-use of non-competes in 2016. The State of New York is also considering a bill barring non-competes for low-wage workers, similar to that passed by Illinois earlier this year. New York and Minnesota used to follow a fairly similar approach to allowing non-competes that were reasonably necessary to protect a legitimate business interest. In Buchanan Capital Markets, LLC v. DeLucca, however, decided by the New York Appellate Division on May 4, 2017, a New York appellate court held for the first time that an employee terminated without cause could not be subject to a non-compete. That has never been the law in Minnesota. Non-competes are already barred in California. If they fall out of favor on the East Coast, one can imagine that Minnesota will be watching this trend closely.