A Look at Law That Restricts Non-Competes In Broadcasting

New York broadcast employees who otherwise have been subject to restrictive non-compete clauses in their employment contracts are the prime beneficiaries of the Broadcast Employees Freedom to Work Act, NY Labor Law '202-k, signed into law in 2008 by Governor David Paterson. The law forbids some, but not all, attempts by employers in broadcasting media to restrict the range of opportunities for certain employees following the termination or expiration of employment. Similar legislation benefiting broadcast industry employees has been passed in Arizona, Illinois, Massachusetts, Maine and Washington, DC; and non-compete provisions are banned in California.

In a press statement announcing the signing, Gov. Paterson cited the “unfair burden” that non-compete clauses inflict on broadcast professionals “by limiting their ability to move to other employers within the same market or within a certain time period,” and expressed the hope that eradicating those clauses will “empower broadcasters with greater independence as they pursue employment options.”

The legislation does not apply to all employees of broadcast organizations, however, and there are questions regarding the extent to which some highly restrictive post-employment clauses, which still are commonly used within the broadcasting industry, are covered.

The statute provides:

A broadcasting industry employer shall not require as a condition of employment, whether in an employment contract or otherwise, that a broadcast employee or prospective broadcast employee refrain from obtaining employment: (a) in any specified geographical area; (b) for a specific period of time; or (c) with any particular employer or in any particular industry; after the conclusion of employment with such broadcasting industry employer.

The statute further clarifies that it “shall not apply to preventing the enforcement of such a covenant during the term of an employment contract.“

Employees cannot waive the law's protection. Any “clause, covenant or agreement” that purports to do so is null, void and unenforceable. And any employer who violates the law will be liable for civil damages to the aggrieved employee for damages, attorney fees and costs.

What employers are affected? As the law defines them, the employer group comprises television stations and networks, radio stations and networks, cable stations and networks, Internet and satellite-based services that are “similar to a broadcast station or network“; as well as broadcast entities affiliated with any of the employers described; and “any other entity that provides broadcasting services such as news, weather, traffic, sports or entertainment reports or programming.“

Although the meanings of “similar to a broadcast station” and “ broadcasting services” are not beyond dispute, the law clearly embraces the vast majority of programming types in traditional media and at least some new media as well.

The affected employee group is defined to include “any on-air employee or off-air employee of [any such employer] ' excluding management employees.” Every non-management employee is eligible to benefit, including anchors, correspondents, and producers. Management employees, who fall outside the scope of coverage, are most likely to possess trade secrets concerning future programs, sales efforts and marketing.

Non-competition clauses that restrict the post-employment activities of employees with that kind of information have been found enforceable despite the disfavor generally shown to anticompetitive post-employment restrictive covenants under New York law. For example, in American Broadcasting Companies Inc. v. Wolf, 52 N.Y.2d 394, 403 (1981), the New York Court of Appeals noted that with regard to post-employment restrictions, “a court normally will not decree specific enforcement of an employee's anticompetitive covenant unless necessary to protect the trade secrets, customer lists or good will of the employer's business, or perhaps when the employer is exposed to special harm because of the unique nature of the employee's services. ' And, an otherwise valid covenant will not be enforced if it is unreasonable in time, space or scope or would operate in a harsh or oppressive manner.” In MTV Networks v. Fox Kids Worldwide Inc., 605580/97 (Sup. Ct., N.Y. County 1998), a non-competition clause was enforced that required a Nickelodeon executive to postpone taking a new job with a competitor because, among other reasons, he had been a key player in setting goals and strategies for Nickelodeon and possessed trade secrets.

The new law does not offer a definition of “management employees,” however, and telling them apart from covered employees may not be simple in every instance.

Some Restrictions Valid

In addition to there being no effect on management contracts, some employment restrictions imposed on non-management employees clearly lie outside the scope of protection both during the term of employment and after. For example, post-term restrictions that are not based on geography, time or industry are unaffected. Thus, employers still may be free to withhold a bonus should an employee accept a job with a competitor. Non-solicitation clauses that protect an employer against loss of customers and other employees still are enforceable.

“Pay or play” clauses also are untouched. Such clauses generally provide that the employer is not obligated to use the services of an employee, such as an actor or producer, during any part of the contract term. The employer must pay the employee, however, what the contract requires throughout the term, including salary and benefits, and the employee does have to remain loyal and refrain from taking other work even should the employer stop using the employee's services.

Further, the law does not apply to non-employees such as consultants and other independent contractors. Accordingly, professionals who furnish services through a loan-out company for tax reasons or otherwise, will derive no benefit from the law; they are hired by the loan-out company and not the broadcasting employer so that a contract with a loan-out company containing a non-compete clause is not affected by the legislation.

And the law has no effect on employment restrictions that are not a condition of employment. Accordingly, an enforceable non-compete clause could be negotiated in a job exit interview in consideration of newly offered severance. Moreover, nothing in the law interferes with restrictions on competition during the term of employment because the law expressly applies only to post-employment restrictions.

Negotiation and Refusal

Are an employer's rights of first negotiation and last refusal also still enforceable? The answer to that question has great practical significance and is discussed below.

For years, broadcasters have argued that non-compete clauses are justified, especially in the case of on-air talent such as a news anchor, because of the substantial amount of time it takes for the station's investment in promoting that anchor to pay dividends. On the other side, the American Federation of Television & Radio Artists (AFTRA), was a strong proponent of the legislation and is given substantial credit for its passage. AFTRA presented the view that because of non-compete clauses, broadcast employees were forced to accept contract terms that were less favorable than they could command in the free market when faced with three bad choices: accepting a current employer's offer, sitting out the non-compete period without working in broadcasting (to the possible detriment of their careers) or moving out of state. According to AFTRA, job candidates either had to accept “these onerous terms” or lose the job.

Despite the survival of some post-employment restrictions noted above, AFTRA appears to have achieved its goals in instances in which broadcasting employees come to the end of their contract terms and their erstwhile employer has no further interest in employing them. Under those circumstances, news anchors, reporters, disc jockeys, writers and producers who are not in management will not be subject to enforceable geography-based, time-based or industry-based barriers in their employment agreements to moving immediately to a new job at a competing broadcasting station located across the street from the last one.

Nor will they need to litigate whether or not they possess the kind of trade secrets, customer lists or good will of their former employer that might have made a non-compete clause enforceable, or whether such a clause is unduly oppressive in their case, or whether monetary damages should apply even if equitable relief did not; the new law prohibits the enforcement for them of such post-term non-competition clauses.

But if the employment term has come to an end or is close to it, and the current employer still has a strong interest in not losing the employee to the competition, or perhaps just wants to drive up the price a competitor might have to pay for that employee, can the employer enforce a matching right if the contract provides for one? The answer to this question has practical significance because clauses giving employers rights of first negotiation coupled with a matching right are still common in the industry. Here are key provisions from a boilerplate clause in a typical broadcaster agreement, lightly edited:

• At the written request of Employer at any time or times during the term of this Agreement, but no later than ninety (90) days prior to the expiration thereof, Employee will negotiate exclusively in good faith with Employer with respect to the terms and conditions for the continued performance of services by Employee following the expiration of the term.
• At no time prior to forty-five (45) days before the expiration date of this Agreement shall Employee discuss, negotiate or enter into any agreement with any third party for the furnishing of Employee's services in any audio or audiovisual medium now known or hereafter developed (the “Medium”) in the United States.
• If Employer and Employee are unable to reach agreement by no later than forty-five (45) days before the expiration date of this Agreement, then for the duration of the Agreement and one hundred eighty (180) days after the term (the “Matching Period”), Employee will not enter into any agreement with any third party with respect to Employee's services following the expiration of the term in any Medium in the United States unless Employer first has been given the opportunity for a period of seven (7) business days to enter into an agreement with Employee on the same terms readily reducible to a determinable sum of money offered by such third party.
• In the event of breach, Employer will be entitled as a matter of right, and without further notice to Employee, to injunctive relief.

Matching Rights

If these provisions are presented today to a job prospect in the boilerplate of an employment agreement and acceptance of them is a condition of getting the job, are they enforceable under the Freedom to Work Act? Seen in the light of the Act's purposes, one might argue they shouldn't be. These provisions could stand in the way of new employment for six months if the employee cannot take a job without offering the same terms to the old employer, just as a pure non-compete clause would. An employee is required to “refrain from obtaining employment” ' at least before giving the first employer a matching right. And if the first employer exercises that right, the employee would be prohibited “from obtaining employment ' with [a] particular employer” ' the new employer ' “after the conclusion of employment” in seeming contradiction of the Act, because he or she must accept continued employment by the first employer.

Broadcast industry employers who still include this clause view the issues from a different perspective. First, those employers say that the right of first negotiation and matching right that applies during the current term of employment falls within the explicit exception in the Act for “enforcement of such a covenant during the term of an employment contract” ' assuming a first negotiation right or a matching right is ever precluded by the Act.

Employers also may argue that a matching right that applies up to six months following employment is a matching right and nothing more; the employee is free to take the new offer if the first employer declines to match its terms. Further, they may observe that if the purpose of the law is to keep broadcast industry workers employed without having to sit on the sidelines for a long period after leaving a job, a matching right will not interfere with continuity of employment if the employee remains with the first employer.

Those who take the position that the Act does not affect first negotiation and matching rights still must take into account the task of enforcing those provisions, including the rare availability of injunctive relief.

The New York Court of Appeals famously addressed that issue in the 28-year-old case involving Warner Wolf, the sportscaster who desired to leave ABC for CBS after his term of employment ended. American Broadcasting Companies Inc. v. Wolf. That case hinged on a good-faith negotiation clause coupled with a matching right that was very similar to the clause described above. (There were two principal differences: one was that the post-term matching period was three months rather than six months; and the other was that the matching right applied only to offers received after the term of employment.) Wolf's contract term ended March 5. The Court of Appeals held that Wolf breached his obligation to negotiate in good faith with ABC during the months preceding the end of his contract by entering into a contract with CBS in February. That clause was binding. The matching right was not applicable because Wolf had entered into a new agreement before the end of his contract term whereas ABC's matching right applied only to Wolf's acceptance of third party offers after his term with ABC, evidently a drafting oversight.

The court declined to enjoin the move to CBS, however, notwithstanding Wolf's breach of the first negotiation right, giving ABC leave to seek money damages only, because “[o]nce the employment contract has terminated ' equitable relief is potentially available only to prevent injury from unfair competition or similar tortious behavior or to enforce a valid and express anticompetitive covenant,” none of which applied. See, 52 N.Y.2d at 405. The court drew attention to the fact that if injunctive relief were granted, “any breach of an employment contract provision relating to renewal negotiations logically would serve as the basis for an open-ended restraint upon the employee's ability to earn a living should he ultimately choose not to extend his employment.” Id.

Conclusion

The Freedom to Work Act has brought relief to many, but not all, broadcast employees who wish to change employers at the end of a contract term without delay, without leaving the industry, and without fear of litigation. However, as long as broadcast agreements include a right of first negotiation and matching right that apply to post-term employment, employees bound to those contracts either will comply or attempt to evade such provisions and face the consequences. With high salaries and high-profile careers sometimes at stake, one may assume that a court proceeding will determine whether the act precludes those clauses.

New York broadcast employees who otherwise have been subject to restrictive non-compete clauses in their employment contracts are the prime beneficiaries of the Broadcast Employees Freedom to Work Act, NY Labor Law '202-k, signed into law in 2008 by Governor David Paterson. The law forbids some, but not all, attempts by employers in broadcasting media to restrict the range of opportunities for certain employees following the termination or expiration of employment. Similar legislation benefiting broadcast industry employees has been passed in Arizona, Illinois, Massachusetts, Maine and Washington, DC; and non-compete provisions are banned in California.

In a press statement announcing the signing, Gov. Paterson cited the “unfair burden” that non-compete clauses inflict on broadcast professionals “by limiting their ability to move to other employers within the same market or within a certain time period,” and expressed the hope that eradicating those clauses will “empower broadcasters with greater independence as they pursue employment options.”

The legislation does not apply to all employees of broadcast organizations, however, and there are questions regarding the extent to which some highly restrictive post-employment clauses, which still are commonly used within the broadcasting industry, are covered.

The statute provides:

A broadcasting industry employer shall not require as a condition of employment, whether in an employment contract or otherwise, that a broadcast employee or prospective broadcast employee refrain from obtaining employment: (a) in any specified geographical area; (b) for a specific period of time; or (c) with any particular employer or in any particular industry; after the conclusion of employment with such broadcasting industry employer.

The statute further clarifies that it “shall not apply to preventing the enforcement of such a covenant during the term of an employment contract.“

Employees cannot waive the law's protection. Any “clause, covenant or agreement” that purports to do so is null, void and unenforceable. And any employer who violates the law will be liable for civil damages to the aggrieved employee for damages, attorney fees and costs.

What employers are affected? As the law defines them, the employer group comprises television stations and networks, radio stations and networks, cable stations and networks, Internet and satellite-based services that are “similar to a broadcast station or network“; as well as broadcast entities affiliated with any of the employers described; and “any other entity that provides broadcasting services such as news, weather, traffic, sports or entertainment reports or programming.“

Although the meanings of “similar to a broadcast station” and “ broadcasting services” are not beyond dispute, the law clearly embraces the vast majority of programming types in traditional media and at least some new media as well.

The affected employee group is defined to include “any on-air employee or off-air employee of [any such employer] ' excluding management employees.” Every non-management employee is eligible to benefit, including anchors, correspondents, and producers. Management employees, who fall outside the scope of coverage, are most likely to possess trade secrets concerning future programs, sales efforts and marketing.

Non-competition clauses that restrict the post-employment activities of employees with that kind of information have been found enforceable despite the disfavor generally shown to anticompetitive post-employment restrictive covenants under New York law. For example, in American Broadcasting Companies Inc. v. Wolf , 52 N.Y.2d 394, 403 (1981), the New York Court of Appeals noted that with regard to post-employment restrictions, “a court normally will not decree specific enforcement of an employee's anticompetitive covenant unless necessary to protect the trade secrets, customer lists or good will of the employer's business, or perhaps when the employer is exposed to special harm because of the unique nature of the employee's services. ' And, an otherwise valid covenant will not be enforced if it is unreasonable in time, space or scope or would operate in a harsh or oppressive manner.” In MTV Networks v. Fox Kids Worldwide Inc., 605580/97 (Sup. Ct., N.Y. County 1998), a non-competition clause was enforced that required a Nickelodeon executive to postpone taking a new job with a competitor because, among other reasons, he had been a key player in setting goals and strategies for Nickelodeon and possessed trade secrets.

The new law does not offer a definition of “management employees,” however, and telling them apart from covered employees may not be simple in every instance.

Some Restrictions Valid

In addition to there being no effect on management contracts, some employment restrictions imposed on non-management employees clearly lie outside the scope of protection both during the term of employment and after. For example, post-term restrictions that are not based on geography, time or industry are unaffected. Thus, employers still may be free to withhold a bonus should an employee accept a job with a competitor. Non-solicitation clauses that protect an employer against loss of customers and other employees still are enforceable.

“Pay or play” clauses also are untouched. Such clauses generally provide that the employer is not obligated to use the services of an employee, such as an actor or producer, during any part of the contract term. The employer must pay the employee, however, what the contract requires throughout the term, including salary and benefits, and the employee does have to remain loyal and refrain from taking other work even should the employer stop using the employee's services.

Further, the law does not apply to non-employees such as consultants and other independent contractors. Accordingly, professionals who furnish services through a loan-out company for tax reasons or otherwise, will derive no benefit from the law; they are hired by the loan-out company and not the broadcasting employer so that a contract with a loan-out company containing a non-compete clause is not affected by the legislation.

And the law has no effect on employment restrictions that are not a condition of employment. Accordingly, an enforceable non-compete clause could be negotiated in a job exit interview in consideration of newly offered severance. Moreover, nothing in the law interferes with restrictions on competition during the term of employment because the law expressly applies only to post-employment restrictions.

Negotiation and Refusal

Are an employer's rights of first negotiation and last refusal also still enforceable? The answer to that question has great practical significance and is discussed below.

For years, broadcasters have argued that non-compete clauses are justified, especially in the case of on-air talent such as a news anchor, because of the substantial amount of time it takes for the station's investment in promoting that anchor to pay dividends. On the other side, the American Federation of Television & Radio Artists (AFTRA), was a strong proponent of the legislation and is given substantial credit for its passage. AFTRA presented the view that because of non-compete clauses, broadcast employees were forced to accept contract terms that were less favorable than they could command in the free market when faced with three bad choices: accepting a current employer's offer, sitting out the non-compete period without working in broadcasting (to the possible detriment of their careers) or moving out of state. According to AFTRA, job candidates either had to accept “these onerous terms” or lose the job.

Despite the survival of some post-employment restrictions noted above, AFTRA appears to have achieved its goals in instances in which broadcasting employees come to the end of their contract terms and their erstwhile employer has no further interest in employing them. Under those circumstances, news anchors, reporters, disc jockeys, writers and producers who are not in management will not be subject to enforceable geography-based, time-based or industry-based barriers in their employment agreements to moving immediately to a new job at a competing broadcasting station located across the street from the last one.

Nor will they need to litigate whether or not they possess the kind of trade secrets, customer lists or good will of their former employer that might have made a non-compete clause enforceable, or whether such a clause is unduly oppressive in their case, or whether monetary damages should apply even if equitable relief did not; the new law prohibits the enforcement for them of such post-term non-competition clauses.

But if the employment term has come to an end or is close to it, and the current employer still has a strong interest in not losing the employee to the competition, or perhaps just wants to drive up the price a competitor might have to pay for that employee, can the employer enforce a matching right if the contract provides for one? The answer to this question has practical significance because clauses giving employers rights of first negotiation coupled with a matching right are still common in the industry. Here are key provisions from a boilerplate clause in a typical broadcaster agreement, lightly edited:

• At the written request of Employer at any time or times during the term of this Agreement, but no later than ninety (90) days prior to the expiration thereof, Employee will negotiate exclusively in good faith with Employer with respect to the terms and conditions for the continued performance of services by Employee following the expiration of the term.
• At no time prior to forty-five (45) days before the expiration date of this Agreement shall Employee discuss, negotiate or enter into any agreement with any third party for the furnishing of Employee's services in any audio or audiovisual medium now known or hereafter developed (the “Medium”) in the United States.
• If Employer and Employee are unable to reach agreement by no later than forty-five (45) days before the expiration date of this Agreement, then for the duration of the Agreement and one hundred eighty (180) days after the term (the “Matching Period”), Employee will not enter into any agreement with any third party with respect to Employee's services following the expiration of the term in any Medium in the United States unless Employer first has been given the opportunity for a period of seven (7) business days to enter into an agreement with Employee on the same terms readily reducible to a determinable sum of money offered by such third party.
• In the event of breach, Employer will be entitled as a matter of right, and without further notice to Employee, to injunctive relief.

Matching Rights

If these provisions are presented today to a job prospect in the boilerplate of an employment agreement and acceptance of them is a condition of getting the job, are they enforceable under the Freedom to Work Act? Seen in the light of the Act's purposes, one might argue they shouldn't be. These provisions could stand in the way of new employment for six months if the employee cannot take a job without offering the same terms to the old employer, just as a pure non-compete clause would. An employee is required to “refrain from obtaining employment” ' at least before giving the first employer a matching right. And if the first employer exercises that right, the employee would be prohibited “from obtaining employment ' with [a] particular employer” ' the new employer ' “after the conclusion of employment” in seeming contradiction of the Act, because he or she must accept continued employment by the first employer.

Broadcast industry employers who still include this clause view the issues from a different perspective. First, those employers say that the right of first negotiation and matching right that applies during the current term of employment falls within the explicit exception in the Act for “enforcement of such a covenant during the term of an employment contract” ' assuming a first negotiation right or a matching right is ever precluded by the Act.

Employers also may argue that a matching right that applies up to six months following employment is a matching right and nothing more; the employee is free to take the new offer if the first employer declines to match its terms. Further, they may observe that if the purpose of the law is to keep broadcast industry workers employed without having to sit on the sidelines for a long period after leaving a job, a matching right will not interfere with continuity of employment if the employee remains with the first employer.

Those who take the position that the Act does not affect first negotiation and matching rights still must take into account the task of enforcing those provisions, including the rare availability of injunctive relief.

The New York Court of Appeals famously addressed that issue in the 28-year-old case involving Warner Wolf, the sportscaster who desired to leave ABC for CBS after his term of employment ended. American Broadcasting Companies Inc. v. Wolf. That case hinged on a good-faith negotiation clause coupled with a matching right that was very similar to the clause described above. (There were two principal differences: one was that the post-term matching period was three months rather than six months; and the other was that the matching right applied only to offers received after the term of employment.) Wolf's contract term ended March 5. The Court of Appeals held that Wolf breached his obligation to negotiate in good faith with ABC during the months preceding the end of his contract by entering into a contract with CBS in February. That clause was binding. The matching right was not applicable because Wolf had entered into a new agreement before the end of his contract term whereas ABC's matching right applied only to Wolf's acceptance of third party offers after his term with ABC, evidently a drafting oversight.

The court declined to enjoin the move to CBS, however, notwithstanding Wolf's breach of the first negotiation right, giving ABC leave to seek money damages only, because “[o]nce the employment contract has terminated ' equitable relief is potentially available only to prevent injury from unfair competition or similar tortious behavior or to enforce a valid and express anticompetitive covenant,” none of which applied. See, 52 N.Y.2d at 405. The court drew attention to the fact that if injunctive relief were granted, “any breach of an employment contract provision relating to renewal negotiations logically would serve as the basis for an open-ended restraint upon the employee's ability to earn a living should he ultimately choose not to extend his employment.” Id.

Conclusion

The Freedom to Work Act has brought relief to many, but not all, broadcast employees who wish to change employers at the end of a contract term without delay, without leaving the industry, and without fear of litigation. However, as long as broadcast agreements include a right of first negotiation and matching right that apply to post-term employment, employees bound to those contracts either will comply or attempt to evade such provisions and face the consequences. With high salaries and high-profile careers sometimes at stake, one may assume that a court proceeding will determine whether the act precludes those clauses.