New York State Set to Ban Non-Competes: What You Need to Know

 New York State is on the verge of joining a growing number of states that have either prohibited or significantly restricted non-compete agreements. This new development has major implications for employers and employees across New York, including New York City. Here’s a comprehensive overview of the upcoming changes and what they mean for you.

Key Takeaways of the NY Non-Compete Law

• Legislative Approval: The Non-Compete Ban has been passed by both chambers of the New York State legislature.
• Statewide Impact: The new law will ban non-compete agreements for all workers in New York State, including those in New York City.
• Voiding Current Agreements: If signed by Governor Hochul, the law will void existing non-compete agreements.
• Legal Recourse: Individuals will have the right to take legal action against any entity attempting to enforce a non-compete agreement or coercing individuals into signing one.
• Permitted Provisions: Confidentiality and non-solicitation agreements are still allowed, though with certain restrictions.

Overview of the New NY Non-Compete Law

On June 20, 2023, the New York Assembly passed a bill that aims to amend the New York Labor Law, banning non-compete agreements and granting covered individuals the ability to bring civil lawsuits against violators. This law prohibits non-compete agreements and certain restrictive covenants and provides legal avenues for those affected to seek redress.

What is Considered a Non-Compete Agreement?

Under the proposed law, a non-compete agreement is defined as:

“Any agreement, or clause within an agreement, between an employer and a Covered Individual that prohibits or restricts the individual from obtaining employment after leaving the employer party to the agreement.”

This definition broadens the scope of what constitutes a non-compete beyond the traditional employer-employee relationship. The law defines Covered Individuals as:

“Any person who performs work or services for another person under conditions that create economic dependence and an obligation to perform duties.”

This broad definition suggests the ban may also apply to independent contractors, not just employees.

Impact on Non-Solicitation and Confidentiality Agreements

Whether non-solicitation and confidentiality agreements will be affected by this new law depends on their specific terms. Non-solicitation agreements, for example, could be interpreted as restricting employment opportunities if they prevent someone from soliciting clients or customers. On the other hand, confidentiality agreements and non-solicitation clauses relating to employees are less likely to restrict employment opportunities.

Employers are still permitted to protect legitimate business interests, such as trade secrets, proprietary information, customer lists, and other valuable business assets.

Will Current Non-Compete Agreements be Voided?

Yes, according to the proposed law:

“Every contract that restrains someone from engaging in a lawful profession, trade, or business is to that extent void.”

While some interpretations suggest that the law does not void current agreements, the summary of the proposed act clarifies that it will indeed render existing non-compete agreements void and unenforceable.

Penalties for Violating the NY Non-Compete Law

Employers who attempt to enforce non-compete agreements after the law takes effect could face severe penalties. Courts will have the authority to void these agreements and order appropriate relief. Additionally, employers could be liable for liquidated damages up to $10,000 for each affected employee.

When Will the NY Non-Compete Law Take Effect?

The law will take effect 30 days after Governor Hochul signs the bill. As of June 20, 2023, the bill is awaiting the Governor’s signature.

Statute of Limitations

The statute of limitations for bringing an action under the NY Non-Compete Law is two years. This period begins on the later of the following:

• The date the non-compete agreement was signed.
• The date the employee becomes aware of the non-compete agreement.
• The date the employment relationship ends.
• The date the employer attempts to enforce the non-compete agreement.

Have Questions About NY Non-Compete or Non-Solicitation Agreements?

If you have any questions or need assistance with non-compete or non-solicitation agreements, call Mansell Law at 646–921–8900. We specialize in employment law and can help you understand your rights under the new regulations.

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