Last month, New York State’s Assembly joined the State’s Senate in passing legislation that would institute a total ban on non-compete agreements in New York. The bill now moves to the Governor’s desk for execution.
What’s Covered
The bill, Bill No. S03100 (the “Bill”) defines a “non-compete” 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.”
The Bill as currently constructed goes far beyond the stated position of New York Governor Kathy Hochul and as such it is uncertain if she will sign it.
One of the key provisions of the Bill grants impacted employees, those subject to an employer’s non-compete, a private right of action against their employers. As part of an individual’s recovery, the court could impose injunctive relief, liquidated damages, compensatory damages (including lost compensation and attorney fees) as well as a penalty of up to $10,000 per violation.
What’s Not Covered
The Bill does not apply to agreements that “establish a fixed term of service or prohibit disclosure of trade secrets, disclosure of confidential and proprietary client information, or solicitation of clients of the employer that the individual learned about during employment.” “Fixed term of service” is understood to allow for certain types of “garden leave.”
Next Steps
The last stop for the Bill is Governor Hochul’s desk. While Governor Hochul is a strong supporter of placing limitations on non-compete agreements, her remarks to date only address eliminating non-competes for low-wage employees, and a ban on “no-poach” agreements for all New York workers, regardless of income. The Bill creates a complete ban on non-competes in New York, which is much broader than what we have seen the Governor support.
New York’s Bill is just the latest in a series of efforts at the federal and state level to curtail and outright eliminate non-compete agreements. This includes the FTC’s federal proposed rule to completely ban all non-competes announced earlier this year. The list of states following this trend is growing.
We encourage our New York readers to understand the impact of this law on their existing non-competes. All our readers should explore with their employment law counsel alternatives should a new state or federal law impact their future usage of non-competes.
It is important to note, a complete ban on non-competes would not be the end of restrictive covenants that employers can use to protect their business interests should an employee leave to work for a competitor. Rather, business owners will just have to get more creative. Remember, most of these laws do not restrict the use of non-solicitation agreements which protect an employer’s employees and customers. Also, nothing stops employers from protecting their proprietary information from being used (stolen) by a former employee. If you need to get creative, Brody and Associates can help.
Brody and Associates regularly advises management on complying with the latest local, state, and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
