For the first time, New York now has a statute governing the use of noncompete provisions, but it applies only to “broadcasting industry employers.” Signed by Governor David A. Paterson on August 6, 2008, the “Broadcast Employees Freedom To Work Act” 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 an entire cluster of industries central to New York's economy from the State's elaborate and long-standing common law governing post-employment restrictive covenants. It will likely also give birth to an entirely new set of issues to be litigated and it will fundamentally alter the negotiation of talent contracts in New York-based media industries.
What The New Law Provides
The Broadcast Employees Freedom To Work Act is a short and seemingly simple piece of legislation. Comparable to Section 16600 of California's Business and Professions Code prohibiting the use of noncompetes, the new law 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” (A) in any specified geographic area; (B) for a specific period of time; or (C) with any particular employer or in any particular industry.” This, effectively, bans the use of noncompetes.
To what employers does it apply? The law applies to any “broadcasting industry employer,” and that term is applied broadly—essentially covering the entire New York-based media industries. It includes “television stations or networks, radio stations or networks, cable stations or networks, Internet- or satellite-based services similar to a broadcast station or network, 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.” Clearly, the legislative drafters of this provision were seeking to apply it broadly throughout New York's media industries, not only to traditional broadcast outlets and local stations, but to the networks that are headquartered in Manhattan and to so-called but no-longer so “new media” companies as well.
To what employees does it apply? The new law applies not only to “on-air” employees but to “off-air” employees as well. It expressly excludes “management employees.” The statute contains no definition of who is or is not deemed to be a “management employee.” Thus, this statute will affect a broad but undefined class of non-management, off-air employees, and will reach considerably further than simply to on-air personalities. Promoted by the American Federation of Television and Radio Artists (AFTRA), New York's new law joins other AFTRA-sponsored broadcasting noncompete bans already on the books in Arizona, Massachusetts, Maine, Illinois and the District of Columbia. New York's law, unlike some of those others, however, does not contain any limitations based on the functions performed by the employees. For instance, unlike the Maine, Illinois and D.C. statutes, New York's new law does not exclude sales employees, a job function that traditionally has often been bound by noncompetes under New York's common law.
The new law applies only to post-employment noncompetes. The prohibition against noncompetes expressly “shall not apply to preventing the enforcement of such a covenant during the term of an employment contract.” In this regard, the new law comports with the result in ABC Broadcasting, Inc. v. Warner Wolf, one of the Court of Appeals' leading cases construing the enforceability on noncompetes in which the Court held that Wolf could not be bound by a post-employment noncompete because he was not a “unique employee,” but in that case the Court suggested without so holding that the result might have been different during the term of Wolf's employment agreement. That post-employment/during employment distinction has now been codified and, as discussed below, will become a central focus of employers, employees, talent and their respective counsel in the new era of contract negotiations to come.
To what actions does it apply? 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.” The act also provides powerful tools to employees who believe that their right to be free of post-employment noncompetes has been violated as it authorizes civil actions for damages by employees, including attorney's fees and costs.
What The New Law Does Not Provide
As broad and encompassing as the new law is, it leaves media industry employers with a broad range of tools that can be used to regulate the post-employment transitions and activities of its employees.
First, as mentioned above, the statute does not define the “management employees” who are exempt from the statute's prohibitions. The statute appears to be consistent with recent New York case law, including a well-publicized case involving children's programming executive Richard Cronin's move from Nickelodeon to Fox Kids. These cases enforced noncompetes against media industry and other executives seeking to jump to competitors at times when they were in possession of their old employer's trade secret plans regarding future sales, marketing and programming efforts. We should expect a surfeit of litigation sorting out who is and is not a “management employee” under the new law.
Second, the statute does not attempt to regulate types of post-employment restrictive covenants that 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 outright prohibit competition. We should expect media employers to be rewriting their forms of employment agreements to utilize these other forms of protection in lieu of flat-out noncompetes.
Third, the statute expressly does not seek to regulate any employment requirements during the term of an employment agreement. Thus, 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 the contract remain viable and enforceable. For example, under the counterpart Massachusetts law, Boston radio personality Howie Carr sued to strike down a noncompete and right of first refusal in his contract with his radio station employer. The Massachusetts Superior Court parsed the provision and held that the noncompete was unenforceable but the right of first refusal permitting the employer to match any competing offer and extend Carr's employment was enforceable through the contract term. We should expect media employers to seek to emphasize these types of contact provisions as they negotiate talent and employment contracts under the new law.
Fourth, and finally (at least for now), the act applies only to employees. It does not apply to independent contractors or consultants. The use of furnishing companies, in which talent enters into contracts not as employees but as a service to be provided by a company that holds the rights to the talent's services, has always been prevalent in certain of the media industries. Those arrangements may prove to be more attractive to employers going forward. Likewise, for certain functions, sales for instance, we may see media employers seeking to enter into independent contractor relationships instead of employing people directly.
In sum, the Broadcast Employees Freedom To Work Act ushers in an entire new era of employment relations and contract negotiations in the New York-based media industries. Companies will be required to revisit and rewrite their forms of agreements in light of this new law. Employers, talent, and non-management employees—and the myriad business affairs personnel, agents, lawyers and representatives who do their bidding—will all be negotiating on a new playing field. New arrangements, new disputes and a great deal of uncertainty will be the inevitable result in the months and years to come as the industries sort out the meaning of this new law.