New York Passes Ban on Non-Compete Agreements – What Does This Mean For Your Business?
On June 20, 2023, the New York State Assembly approved Bill No. S3100A, which essentially would prohibit non-compete agreements in the State of New York. If signed into law, this would be a game-changer for employers and employees in the State of New York. The law would apply thirty (30) days after it is signed by the Governor of the State of New York.
What is Bill No. S3100A?
Bill No. S3100A would amend the New York Labor Law (NY Labor Law 191-d) by stating that “no 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.”
Under the Bill, “non-compete agreement” is defined 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.”
A “covered individual” means “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, or under an obligation to perform duties for, that other person.”
Exceptions to the Bill No. S3100A
Nonetheless, there are exceptions for certain types of restrictive covenants or agreements. Specifically, the following agreements would still be enforceable, provided they do not “otherwise restrict competition” in violation of the Bill:
- An agreement with a prospective or current covered individual that establishes a fixed term of service
- An agreement that prohibits the disclosure of trade secrets, or the disclosure of confidential and proprietary information; or
- An agreement that prohibits the solicitation of clients of the employer that the covered individual learned about during employment,
Note that an agreement that prohibits the solicitation of employees is not addressed in the Bill.
What a Ban on Non-Compete Agreements Means For Your Business
The Bill creates a private right of action for covered individuals to bring legal action against employers. Specifically, the employee shall have two years from the later of “(i) when the prohibited non-compete agreement was signed; (ii) when the employee learns of the prohibited non-compete agreement; (iii) when the employment relationship is terminated; or (iv) when the employer takes any steps to enforce the non-compete agreement” to file suit.
The Bill permits a court to void a non-compete agreement and order the appropriate relief, including liquidated damages “calculated as an amount not more than ten thousand dollars.”
Therefore, if signed into law, this Bill would certainly limit an employer’s ability to protect their legitimate business interests and would potentially have significant ramifications for employers who still require non-compete agreements.
Have Questions About the Ban on Non-Competes in New York?
As an employer, it is important for you to understand the permissible types of agreements that may lawfully be presented to employees. This Bill is a significant departure from existing New York restrictive covenant law. As such, if the Bill is signed into law, it is recommended that you obtain counsel to review and update your restrictive covenant agreements as soon as possible to ensure compliance. If you need any assistance with issues related to non-compete agreements, please contact Curcio Mirzaian Sirot LLC.