CSG Law Alert: Proposed New York Legislation Banning Non-Compete Agreements May Become Law
A recently proposed law could end the use of non-compete agreements in the Empire State and enable employees to bring a lawsuit against an employer alleged to have violated such a prohibition.
The bill – A01278 – passed in both houses of the New York Legislature this past June, and, if Governor Kathy Hochul signs it into law, the new rules will become effective 30 days thereafter and will apply to any contract entered into or modified on or after the effective date. Importantly, the New York legislation will prohibit employers from seeking, requiring, demanding or accepting a “non-compete agreement” from any “covered individual.”
As defined in the proposed legislation, a “non-compete agreement” includes “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.” The proposed legislation further defines “covered individual” as “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.”
If an employer violates the proposed law by entering into a non-compete agreement with a covered individual or seeks to enforce a prohibited non-compete agreement against such covered individual, the aggrieved covered individual will be entitled to bring a civil action against the employer. In such a civil action, a court would have the power to void the non-compete agreement and to order all appropriate relief, such as (a) enjoining the conduct of any person or employer; (b) ordering payment of liquidated damages (an amount not to exceed $10,000.00); and/or (c) awarding lost compensation, damages, reasonable attorneys’ fees and costs.
Importantly, so long as an agreement does not otherwise restrict competition in contravention of the New York law, an employer may enter into an agreement with a prospective or current covered individual that (a) establishes a fixed term of service; (b) prohibits disclosure of trade secrets; (c) prohibits the disclosure of confidential and proprietary client information; or (d) prohibits the solicitation of clients of the employer that the covered individual learned about during employment. In a change from other state bans, the New York law does not appear to contain an exception for non-competes that are part of the sale of a business.
New York’s proposed law is part of a larger trend in which state and federal governments have banned or limited covenants not to compete. If signed into law, New York would become the fifth state to ban such clauses, joining California, Minnesota, North Dakota, and Oklahoma in state-led efforts, to ban non-compete agreements. On a national level, both the Federal Trade Commission and National Labor Relations Board have adopted rulemaking and enforcement efforts to ban non-competes, though such efforts are only starting to take form.
At CSG Law, we continue to monitor and review pending legislation, laws, and regulations that target the use and enforcement of non-compete provisions between employers and their workforce. In the wake of the New York law discussed and other impending laws and regulations that may likely follow, we encourage employers to review current agreements with their employees and proceed cautiously in current negotiations with prospective employees. Employers should focus on narrower non-solicitation and confidentiality clauses that protect their interests, but do not outright ban an employer from working for a competitor.
If you have any questions relating to the New York law, please feel free to reach out to your CSG Law attorney or the authors of this alert.