The New York State Legislature recently passed a bill that, if approved by Governor Hochul, would effectively ban all non-compete agreements in New York State.
By Kimberly B. Malerba and Nicole E. Osborne Ruskin Moscow-Faltisek, PC
The New York State Legislature recently passed a bill If approved by Gov. Hochul, it would effectively ban all non-compete agreements in New York. The bill will take effect 30 days after the governor signs it. If the bill becomes law, New York would join Minnesota, California, North Dakota and Oklahoma in a larger nationwide noncompete drive that has all passed similar legislation.
In addition to action at the state level, there has also been action at the federal level to ban non-compete agreements. As previously stated in RMF’s “Most Non-Compete Practices Violate Federal Law, According to NLRB General CounselIn the blog post, the National Labor and Relations Board recently issued a memo finding that most non-compete agreements violate the National Labor Relations Act. This trend is further exacerbated by the directive of non-compete agreements. For more information on the FTC’s proposed rule, see RMF’s “What Employers Should Know About the FTC’s Proposed Non-Compete Provisions“Blog post.
employees covered
The New York Act provides a broad definition of a “non-compete agreement,” defining it as “any agreement or term contained in any agreement between an employer and a protected individual that prohibits or restricts For the purposes of this legislation, a “covered individual” means “any other person, whether employed under a contract of employment or not, who provides work or services to another person on terms and conditions relating to that person”. A person who is financially dependent on that person and is obliged to perform duties for that person. Not only are employees protected under this broad definition, independent contractors may also be protected if they are financially dependent on their employer.
pre-existing non-compete
Importantly, even if the bill is signed, it will not apply retroactively, meaning it will have no impact on existing non-compete agreements. However, any non-compete agreement entered into on or after the effective date will violate this Act. In addition, any modification of the existing non-compete agreement after it becomes effective may invalidate the restriction. Additionally, it is unclear how invocations of prior non-compete agreements would be handled in new contracts or separation agreements under the forthcoming law.
limited exceptions
The bill includes few exceptions to the widely proposed exceptions to non-compete agreements. However, the Act does provide that agreements prohibiting the disclosure of trade secrets or confidential and proprietary information and client non-solicitation agreements remain in effect. Notably, the bill does not specify whether non-solicitation agreements involving company employees are permitted.
Surprisingly, the bill also makes no mention of non-compete related to the sale of a business. It is common practice to impose restrictive covenants for a fixed period after a business is sold. Additionally, this exception exists in nearly all legislation on the subject in other states, as well as in proposed guidance at the federal level. Still, it’s unclear whether that practice would be invalidated by New York’s bill.
private right of action
An injured individual may bring a civil action under this Act, if signed, for a violation within two years of: (i) when the illegal non-compete agreement is signed; (ii) when the individual learns of the prohibited non-compete agreement ; (iii) when the employment or contractual relationship ends; (iv) when the employer takes any steps to enforce the non-compete agreement. Courts will have the power to declare any non-compete agreement void and award employees “all appropriate remedies,” including damages, attorneys’ fees, injunctive relief and liquidated damages of up to $10,000.
protect yourself as an employer
While the bill has yet to become law, employers should start taking steps to prepare for New York’s post-noncompete world. Although the Act will not apply retroactively, it is important to review the language of a business’s current employee and independent contractor agreements to assess whether they violate the provisions of the Act and, if so, the appropriate next steps the business should take in Fully protect its confidential information and trade secrets after signing. Blind spots and ambiguities in the Act have created gaps and unknowns that may be addressed in future legislation or the courts.
Ruskin Moscou Faltischek will continue to monitor the status of pending legislation and is ready to assist employers in keeping them informed of further developments on this issue at the state and federal level. If you have any questions about New York’s pending noncompete agreement ban, or any other employment-related questions, please contact Kimberly Malerba at kmalerba@rmfpc.com or (516)-663-6679, or Nicole Osborne at nosborne@rmfpc . com or (516)-663-6687.
Image credit: Ruskin Moscou Faltischek, PC
