We recently discussed new federal and state legislation covering corporate transparency. There are additional legal trends that NY franchisors and franchisees should know that can impact their businesses. Let’s review what was newly enacted in 2024 and what was nearly passed into state law.
NY’s New Minimum Wage Now In Effect
New York State’s minimum wage increase was in flux during 2023 as previously discussed, but it went into effect on Jan. 1, 2024. The new minimum wage is now $16-per-hour in New York City, Long Island, and Westchester County and $15 hourly in the rest of the state.
Nursing and medical services franchises should also know that the minimum wage for home care aides has increased to $18.55 hourly in New York City, Long Island, and Westchester County and $17.55 hourly in the rest of the state.
The raise is part of a multi-year plan which will see New York’s minimum wage rise through 2026 and index it to inflation beginning in 2027. After the initial increase, the minimum wage will increase by $0.50 in 2025 and 2026. Business owners should take note of this new wage and be sure it is reflected on their payroll; this will help prevent employee complaints to the Department of Labor.
NY Non-Compete Agreement Ban Is A No-Go (For Now)
A bit of news that flew under the radar in December 2023 is certainly worth a mention here. Gov. Hochul vetoed proposed legislation that would have banned non-compete agreements in all situations.
In connection with the employment relationship, a non-compete agreement signals the employee’s agreement to not work for a competitor for some period of time after the employment ends. Generally, courts do not like to enforce non-compete agreements in the employment context as employees should have the ability to work. For a non-compete agreement to be enforceable, a court must determine that the non-compete:
- Is necessary to protect the employer’s legitimate interests,
- Does not impose an undue hardship on the employee,
- Does not harm the public, and
- Is reasonable in time and geographic scope.
Labor groups and even the FTC urged the governor to sign, arguing that non-compete agreements hurt workers and discourage new businesses from opening in the state. However, if signed by Gov. Hochul, the proposed legislation would have rendered years of common law obsolete.
No Carve Out for Franchising
Importantly for franchisees and franchisors, under common law in New York, non-compete agreements are analyzed differently in the sale of a business or franchise context. In those instances, non-compete agreements are presumptively valid as they help to ensure that a buyer will get the benefit of its bargain and that the franchisor can protect its proprietary business methods.
Indeed, non-compete agreements in the franchise context have been deemed very important to the franchise business model. That is because enforcement of non-compete agreements helps ensure that after franchisors train franchisees on their proprietary business systems, franchisees cannot simply exit the system, change the name of the their businesses and operate competing businesses at the former franchise locations.
We previously discussed the FTC’s proposed Rule banning non-competes. The proposed New York legislation differs, because the FTC included exceptions for the sale of businesses and franchises in its rule, and the proposed New York legislation called for a complete ban in all contexts and did not contain any exceptions.
Brief Words of Caution on Non-Competes
The veto was a welcome development for business owners, but this is likely not the end of the road when it comes to non-competes. Gov. Hochul indicated that she is willing to revisit the issue. Since the measure passed New York’s Assembly and Senate, it is likely that lawmakers will propose revised legislation, but it is unclear whether such legislation will contain the standard carve outs in connection with the sale of a business or in the franchisor/franchisee relationship. This could have significant ramifications for franchise stakeholders throughout New York.
Lusthaus Law will continue to observe how these new and updated laws impact clients and the franchising industry. Our prior Insights installment covers federal- and state-level corporate transparency laws.
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