In a significant development, the New York State legislature recently passed a bill prohibiting non-compete agreements for all workers, regardless of their salary level or job function. When/if Governor Hochul will sign the measure into law remains to be seen, given that the legislative session has ended. Let’s look at the new law, which has implications for employers and employees.
Understanding New York’s Ban on Noncompetes
In short, the new law establishes a complete ban on non-compete agreements, prohibiting employers, their agents, and officers from seeking, requiring, demanding, or accepting such agreements from covered individuals. This ban covers various entities, including corporations, partnerships, and limited liability companies.
New Labor Law Section 191-d defines a “non-compete agreement” as any agreement that restricts an individual’s ability to seek employment after leaving their current job. Additionally, the law defines a “covered individual” as someone who performs work or services for another person, regardless of their employment or contractor status.
Private Right of Action
Section 191-d also provides covered individuals with a private cause of action, meaning that they can bring a civil lawsuit against employers or individuals alleged to have violated the provisions of the law. The statute of limitations for filing a lawsuit is two years from the date of signing the non-compete agreement, the discovery of its existence, termination of employment, or any attempt by the employer to enforce the agreement.
While the law broadly bans non-compete agreements, it does provide exceptions. Agreements that establish a fixed term of service, prohibit the disclosure of trade secrets or confidential client information, or prohibit the solicitation of employer clients learned about during employment are permitted. However, these exceptions must not violate the broader provisions of the law that restrict competition.
Existing Non-Compete Agreements
The new law does not retroactively void or affect existing non-compete agreements. It only applies to contracts entered or modified on or after the effective date. That differs from the proposed ban on noncompete the Federal Trade Commission (FTC) is considering, which we recently covered (here). The FTC’s proposed rule would (1) require employers to rescind existing noncompetes and (2) inform employees the agreement is no longer in effect.
This bill marks a significant change in New York employment law; however, certain aspects remain unclear and may lead to litigation and challenges. Because the language in some provisions is confusing and redundant, courts will likely play a crucial role in defining the boundaries and interpreting the legislation.
In any event, New York State’s ban on non-compete agreements goes into effect once the governor signs the bill. Employers should familiarize themselves with the provisions of Section 191-d to ensure compliance and avoid potential legal pitfalls. Additionally, employees should consult an experienced employment lawyer to determine whether their non-compete agreements are enforceable under the new law.