New York is slated to join the growing movement against non-compete agreements.[1] On June 20, 2023, the New York State Assembly passed A1278B, amending the state’s current labor law to prohibit non-compete agreements for workers.[2] The bill comes in the wake of the Federal Trade Commission’s proposal for a nationwide ban on non-competes.[3] The rule would designate all non-competes as unfair competition, thus violating Section Five of the Federal Trade Commission Act.[4] Such a prohibition would have widespread effects, impacting approximately 30 million Americans and increasing wages by nearly $300 billion annually.[5] While a vote on a nationwide ban is not expected until next year, passage of the New York bill would make it the fifth state with a blanket ban on non-competes.[6] This would also be the broadest ban yet, applying to all workers regardless of salary.[7]
Currently, the New York bill is awaiting a signature from Democratic Governor Kathy Hochul.[8] If signed, the bill would become effective 30 days later and make any non-compete agreement signed or modified after the bill’s effective date unlawful.[9] The bill provides 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.… [N]o employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity, shall seek, require, demand, or accept a non-compete agreement from any covered individual.”[10]
“Non-compete agreement” means any agreement or clause contained that prohibits covered individuals from obtaining employment after the conclusion of the employment.[11] “Covered individual” is any person who performs work or services for another person on such terms that the individual is in a position of economic dependence on and under an obligation to perform duties for that other person, whether or not under a contract of employment.[12]
Exceptions and Enforcement
The bill names a few express exceptions to the ban, as long as they do not “otherwise restrict competition” in violation of the law.[13] The exceptions include: agreements that establish a fixed term of service, agreements prohibiting disclosure of trade secrets or confidential and proprietary client information, and agreements prohibiting solicitation of clients that were learned about during employment.[14] The new law creates a private cause of action for covered individuals to invalidate a non-compete.[15] The cause of action has a two-year statute of limitations and affected individuals may be awarded an injunction against the employer and payment of damages including lost wages and attorneys’ fees.[16] Liquidated damages are to be paid to every covered individual affected under the law and are not to exceed ten thousand dollars.[17]
Anticipated Effects
Professionals in the field have expressed concern surrounding the overly broad language of the bill, noting open questions regarding existing employment agreements, garden leave (paying a salary to employees not to work for a specified period), and non-solicitation agreements.[18] These questions will likely be resolved through The New York State Department of Labor regulations, or through a wave of litigation.[19] If the bill is passed, more states are expected to follow suit.[20] Due to the size and economic importance of New York, ripple effects can be anticipated for other states that have a similarly situated market for competition.[21] Passage of this bill will transform the landscape of employment contracts in New York.[22]
[1] New York’s Imminent Non-Compete Ban, Sidley Austin (Jun. 28, 2023), https://www.sidley.com/en/insights/newsupdates/2023/06/new-yorks-imminent-non-compete-ban.
[2] John J. Cannon, et al., New York State Poised to Ban Non-Competes, Shearman & Sterling (Jun. 23, 2023), https://www.shearman.com/en/perspectives/2023/06/new-york-state-poised-to-ban-non-competes.
[3] 2023 Assemb., Reg. Sess. (Ny. 2023).
[4] Cannon, supra note 2.
[5] See Emmy Lucas, New York’s Noncompete Bill Is A ‘Big Domino To Fall’ – And The Broadest Ban Yet – In A Growing Movement Against Them, Forbes (Jun. 27, 2023), https://www.forbes.com/sites/emmylucas/2023/06/27/new-yorks-noncompete-bill-is-a-big-domino-to-fall-and-the-broadest-ban-yet-in-a-growing-movement-against-them/?sh=192d72a6d32e.
[6] Id.
[7] Id.
[8] Sidley Austin, supra note 1.
[9] Id.
[10] Supra note 3.
[11] Id.
[12] Id.
[13] Sidley Austin, supra note 1.
[14] Tal Marnin, New York State Set to Prohibit Non-Compete Agreements, White & Case (Jun. 22, 2023), https://www.whitecase.com/insight-alert/new-york-state-set-prohibit-non-compete-agreements.
[15] Cannon, supra note 2.
[16] Id.
[17] Id.
[18] See Lucas, supra note 5.
[19] Cannon, supra note 2.
[20] Lucas, supra note 5.
[21] Id.
[22] See New York State’s Pending Non-Compete Ban: Potential Impact on Corporate Transactions, Brownstein (Jul. 7, 2023), https://www.bhfs.com/insights/alerts-articles/2023/new-york-state-s-pending-non-compete-ban-potential-impact-on-corporate-transactions.
