NYS Moving Toward Prohibiting Non-Competes
This month, the New York State Legislature passed a bill that, if signed into law by Governor Hochul, would ban non-compete agreements in New York. This bill is the latest of government efforts at the federal and state level to curb non-competes. Earlier this year, the Federal Trade Commission issued a proposed rule that would ban non-competes, and last month the National Labor Relation Board’s General Counsel published an advisory memorandum in which the General Counsel opined that non-compete agreements violate Section 7 of the NLRA by chilling non-supervisory employees’ rights to engage in protective collective action. While the FTC’s proposed rule has yet to be finalized, and the NLRB memo is not binding authority, these efforts reflect an increasing focus on limiting non-compete agreements by both state legislatures and the federal government.
The New York bill, which would modify section 191-d of the New York Labor Law, would prohibit employers from requiring, demanding, or accepting a non-compete agreement from any covered individual. The bill defines a non-compete agreement broadly, as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”
“Covered individual” is defined broadly to include “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.”
The bill states that, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The bill also states that the law will be applicable only to contracts entered into or modified after the effective date of the law. While it would seem that the non-compete ban would be prospective only, the voidability language creates some uncertainty.
The bill also appears to carve out some limited exceptions, and states that the law would not affect any other provision of federal, state, or local law relating to the ability of an employer to enter into an agreement that (1) establishes a fixed term of service, or (2) prohibits disclosure of trade secrets, disclosure of confidential and proprietary client information, or solicitation of clients of the employer that the covered individual learned about during employment, provided that such agreement does not otherwise restrict competition in violation of the law. This language suggests that the law would not act as an outright ban on non-solicitation and confidentiality clauses, but the extent to which such clauses would be limited by this law is not clear and would likely be further established by the courts.
Unlike other state non-compete laws, the New York bill does not permit employers to enter into non-compete agreements with highly compensated employees, nor does it give employers the option to provide compensation during a non-competition period. Ultimately, this bill, if signed into law, would be one the most restrictive state laws concerning non-competes in the U.S.
The law would provide covered individuals with the right to bring a civil action against employers for violations of the law. A civil action would have to be brought within two years of the later of: (1) when the prohibited non-compete agreement was signed; (2) when the covered individual learns of the prohibited non-compete agreement, (3) when the employment or contractual relationship is terminated; or (4) when the employer takes any step to enforce the non-compete agreement. Remedies available in these actions would include voiding the non-compete agreement; enjoining the conduct of any person or employer; ordering payment of liquidated damages up to $10,000 per violation; and awarding lost compensation, damages, and reasonable attorney’s fees.
Governor Hochul has 30 days to sign the bill into law or it will be vetoed automatically at the end of the 30-day period. If the bill is signed into law, it will take effect 30 days after enactment.
We will continue to monitor the status of the New York non-complete ban and other federal efforts to limit non-compete agreements. If you have any questions about this bill or your non-compete agreements, please contact Caroline F. Secola at csecola@fglawllc.com, or any attorney at the firm.
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