On August 6, 2008, New York State Governor David A. Paterson signed in to law the "Broadcast Employees Freedom to Work Act" (the "Act"). The Act is the first New York statute to govern use of noncompete provisions and prohibits a broadly defined group of media employers from requiring or seeking to enforce post-employment noncompetes affecting all but "management employees." This new law removes employment relations in the broadcast industry from the State's long-standing common law governing post-employment restrictive covenants and may have far-reaching implications for parties contemplating the acquisition of assets or interests in broadcast industry businesses. In particular, potential purchasers must consider whether any owners, sellers or persons employed by seller will be entering into a post-closing employer-employee relationship.

The Act provides that affected employers "shall not require as a condition of employment, whether in an employment contract or otherwise" that any affected employee or potential employee "refrain from obtaining employment . . . after the conclusion of employment with such . . . employer" either "(A) in any specified geographic area; (B) for a specific period of time; or (C) with any particular employer or in any particular industry." The Act applies to both "on-air" employees and "off-air" employees of any "broadcasting industry employer," and that term applied broadly would appear to include all New York-based media industries including, without limitation, television stations or networks, radio stations or networks, cable stations or networks, Internet- or satellite-based services similar to a broadcast station or network, so-called "new media" companies, any broadcast entities affiliated with any of the employers of this paragraph, or any other entity that provides broadcasting services such as news, weather, traffic, sports, or entertainment reports or programming. The Act expressly excludes "management employees" but includes no definition of that term.

The Act is mandatory in the broadcast media industries and cannot be bargained-away in contract negotiations for it states expressly that the prohibition on post-employment noncompetes "may not be waived, and any clause, covenant or agreement to waive such prohibition shall be null and void and may not be enforced against the parties in any court or other jurisdiction."

It should be noted that the Act applies only to post-employment noncompetes in the employer-employee context. The prohibition against noncompetes does not apply to preventing enforcement of such covenants during the term of an employment contract nor does it affect the scope or enforceability of seller non-competes in acquisition agreements and similar transaction documents.

M&A Implications

As described above, the introduction of the Act has implications for purchasers wishing to buy interests in businesses within the affected industry. In particular, purchasers must be mindful of owners, sellers or other key employees with whom they desire a post-acquisition employment relationship.

  • As noted above, the Act explicitly excludes "management employees." Irrespective of the potential difficulties in defining this term, one can assume that true management employees (i.e. individuals being retained to supervise and/or manage the purchased business) would be covered by this exception. Accordingly, potential purchasers may establish a particular employee's exemption from the Act through careful draftsmanship. For example, an employment agreement may be drafted so as to emphasize an employee's management level position and responsibilities. In addition, a particular employee may be asked to represent that he or she is in fact a management employee within the purview of the Act and is not governed by any other provisions therein.
  • In addition, the Act does not regulate any requirements during the term of an employment agreement. Thus, employment term non-competes, notice periods, exclusive negotiation periods, rights of first refusal, rights of last refusal, pay or play provisions and other contractual provisions that govern the end or extension of an employment relationship during the term of employment remain enforceable and may be utilized in the negotiation of post-acquisition employment agreements.
  • Moreover, the Act does not regulate post-employment restrictive covenants which do not prohibit employment based on time, geography, or company. For instance, employers in the media industries remain free to require and enforce post-employment nonsolicitation clauses protecting their customer and employee relationships, confidentiality provisions, notice periods, forfeiture provisions and other forms of restrictive covenants that do not prohibit competition outright. Accordingly, potential purchasers may employ these forms of protection in lieu of flat-out post-employment noncompetes for affected employees.
  • Finally, the Act does not apply to independent contractors or consultants. For example, purchasers may ask concerned parties to enter into independent contractor or part-time consultancy relationships instead of traditional employment agreements.