New York State Legislature Aims to Prohibit Use Of No-Poach and No-Rehire Clauses

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Last week, the New York State Senate advanced two bills seeking to ban both “no-poach” clauses in franchise agreements and “no-rehire” clauses, which are commonly used in settlement agreements.

The first of these bills, known as the End Employer Collusion Act (Bill S562), prohibits no-poach agreements between franchisors and franchisees.  Such agreements restrict franchisees from soliciting or hiring current or former employees of the franchisor or other franchisees.  The End Employer Collusion Act would also provide a private right of action for any person denied employment on account of a no–poach agreement, and would allow for the recovery of actual and punitive damages, as well as costs and attorneys’ fees.  The New York legislature is not the first to target no-poach clauses in franchise agreements; Washington passed legislation banning such clauses nearly two years ago.  In addition, prior to taking office, in his Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions, President Biden indicated that he would like to see federal legislation in this area, and that he intends to work with Congress to “outright ban all no-poaching agreements.”

The second bill, S766, would prohibit employers from inserting no-rehire clauses in settlement agreements with employees or independent contractors.  Such clauses bar employees from applying for or accepting future employment with the employer, or its related entities, and were originally designed to protect an employer from retaliation claims in the event that the employee reapplied for his or her prior job and was not hired.  The proposed legislation would void settlement agreements containing no-rehire clauses.  However, the employer’s obligations under the settlement agreement, including payments to the employee, would remain intact, creating the possibility for an employee to sue the employer again after having received a settlement payment.  While the justification for the bill states, “[t]he bill would not, however, prohibit any termination of employment mutually agreed upon as part of a settlement, nor would it automatically force a defendant employer to rehire an employee who had previously settled a case against the employer,” it could expose employers to increased risk of multiple litigations with the same employee.

Both bills are ones to watch.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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