New York Joins the Non-Compete Ban Wagon

Following through on Governor Hokhul’s promise in her 2022 State of the State address, New York lawmakers passed a blanket ban on all non-compete agreements, thus joining the growing federal and state efforts to curb their use.   However, the bill imposes greater restrictions than those implemented in other jurisdictions, including California, North Dakota, Oklahoma, Colorado, Illinois and Maryland.  The bill will take effect 30 days after it is signed by the Governor.

The Broad Scope of the Ban: 

The bill prohibits all employers, regardless of industry, from seeking, requiring, demanding or accepting a non-compete agreement from any “covered individual,” defined as any person who performs services on such terms that the individual is economically dependent on the other.  Thus, unlike other laws that include a carve out for highly compensated employees, the ban extends to all workers across the board, including workers hired as independent contractors.

The bill defines a “non-compete agreement” as “any agreement or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts a covered individual from obtaining employment” after a termination of employment.   Although the bill specifies that it does not prohibit non-solicitation agreements barring solicitation of clients that “the covered individual learned about during employment, provided that such agreements do not otherwise restrict competition in violation of this section,” broader non-solicitation agreements appear to be prohibited.

Another provision of the bill appears to go further, declaring that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”   It is unclear whether this provision or other aspects of the bill would extend to other contractual arrangements, such as compensated garden leaves or non-competes by former shareholders as part of the sale of a business.

What is Not Prohibited:

In addition to the carve-out for client non-solicitation agreement, the bill does not regulate the ability of employers to enter into fixed term employment agreements or non-disclosure/confidentiality agreements.

Legal Remedies: 

Covered individuals can bring suit against an employer or person who violates the restrictions within two years of the later of: (i) the execution of the prohibited non-compete; ii) when the covered individual learns of the non-compete; iii) when the employment or contractual relationship is terminated; or iv) when the employer takes steps to enforce the non-compete.  Available remedies include injunctive relief, lost wages liquidated damages of up to $10,000, attorney fees and costs.

What About Current Agreements?:

Despite its extensive reach, the final sentence of the bill states that it will apply to contracts entered into or modified after the effective date, signaling that pre-existing non-competes will not be affected.

Take Away:

This latest attack on restrictive covenants is further evidence that their use is increasingly deemed an unacceptable business practice.  Employers who employ restrictive covenants should consult with legal counsel to assess whether these agreements are permissible or advisable going forward.

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