UPDATE: New York State Legislature Passes Bill Banning Post-Employment Noncompete Agreements

On June 20, 2023, the New York State Assembly passed a bill previously approved by the State Senate that will essentially ban all post-employment noncompete agreements in New York State. (Our prior advisory analyzing the new bill is below.)

The bill now heads to the desk of Governor Kathy Hochul for her signature, and most commentators expect her to sign it.

We will continue to monitor the status of this bill and provide prompt updates through the legislative process.

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On June 7, 2023, the New York State Senate passed new sweeping legislation, Senate Bill S3100A (the "Bill"), which would ban post-employment noncompete agreements in New York. The Bill now heads to the New York State Assembly. Although the Assembly is currently in recess through the end of the year, many Assembly members have called for the Assembly to return before the end of June to handle several pending bills. If passed in the New York State Assembly and signed by the Governor, the ban would become effective 30 days later.

This action by the New York State Senate follows a recent trend by other state governments and federal agencies seeking to prohibit or limit noncompete agreements, which we have covered in our prior advisories (available here, here and here). 

What Would Be Prohibited by the Bill?

Should the Bill become law, it would prohibit employers from seeking, requiring, demanding, or accepting a post-employment "non-compete agreement" from any "covered individual." The Bill defines a "non-compete agreement" to mean "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." The Bill also defines "covered individuals" broadly, meaning "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, and under an obligation to perform duties for, that other person."

Notably, this law would be broader than similar laws in California and Minnesota, and the proposed rule issued by the Federal Trade Commission earlier this year, insofar as there is no exception for noncompete agreements arising out of a sale of a business.

With respect to other common restrictive covenants, the Bill explicitly states that it does not prohibit nondisclosure agreements and client nonsolicitation agreements so long as such agreements do not otherwise restrict competition in violation of the Bill. 

Would the Bill Invalidate Current Noncompete Agreements?

It is unclear whether this ban would invalidate current noncompete agreements (as the FTC seeks to do in its proposed rule). Notably, the Senate's summary of the Bill states that it would void current noncompete agreements. And, Section 3 of the Bill broadly states, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The actual language of the Bill, however, which states that it "shall be applicable to contracts entered into or modified on or after such effective date," suggests that the law would only apply prospectively and not impact noncompete agreements entered into before the law becomes effective.  

What Would the Consequences Be for Violating This Law?

The Bill provides a private right of action to covered individuals. Most significantly, the Bill provides for liquidated damages up to $10,000 per violation, and states that "the Court shall award liquidated damages to every covered individual affected under this section, in addition to any other remedies permitted by this section." (Emphasis added). In addition to the apparent mandatory liquidated damages provision, courts may also order injunctive relief and the payment of lost compensation, damages, reasonable attorneys' fees and costs. 

The Bill contains a two-year statute of limitations permitting covered individuals to bring a lawsuit two years from the later of: (i) when the prohibited noncompete agreement was signed; (ii) when the employee learns of the prohibited noncompete agreement; (iii) when the employment relationship is terminated; or (iv) when the employer takes any steps to enforce the noncompete agreement.

Next Steps

In sum, while New York employers are not required to take any immediate action, if the Bill becomes law, employers will need to review employment and independent contractor agreements to remove noncompete provisions. DWT attorneys will monitor and report on the status of the Bill as it heads through the legislative process. In the meantime, if you have any questions about preparing to comply with the Bill should it become law, please contact a member of the DWT employment services group.