On June 20, 2023, the New York Senate sent bill S.3100A/A.1278B to the desk of Governor Kathy Hochul to prohibit non-competition agreements broadly throughout New York State. This bill, if signed into law, will take effect after thirty days and will prevent New York employers from using non-competition agreements in the future.
The bill defines a “non-compete agreement” as “any agreement between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of the employment.” A “covered individual” is someone who “performs work or services” for another person in a position where they are economically dependent on, and under an obligation to perform duties for, that other person. By using this definition, the New York legislature intends to focus on the work and services provided by a worker, rather than the terms of their employment relationship. This means that independent contractors would likely be covered individuals under the law.
The bill would prohibit an employer, or any of an entity’s agents or officers from seeking, demanding, requiring, or accepting a non-compete agreement entered into by any covered individual. Additionally, the bill provides a private right of action to a covered individual, who may bring a civil action against an employer within two years of 1) the signing of the unlawful agreement, 2) learning of the signed agreement, 3) the termination of the relationship, or 4) the attempted enforcement by the employer of the agreement. If an employer is found in violation of the law, the court is required to award liquidated damages up to $10,000. An aggrieved employee may also be entitled to injunctive relief, as well as lost compensation, and other damages, including reasonable attorney’s fees and costs. The bill includes limited carve-outs for 1) agreements establishing a fixed term of service, 2) non-disclosure agreements, and 3) agreements for the non-solicitation of clients.
The proposed law does not contain an explicit carve out for non-competes entered into in conjunction with a sale of a business. Additionally, the law will only be enforced prospectively, so already existing non-competes will likely not be impacted by the legislation.
Governor Hochul has thirty days to sign or veto the bill, or alternatively, to approve the bill, subject to certain modifications. If the bill is vetoed or modified, its enactment will be delayed as the legislature will not return to session until January 2024. As of this writing, it is unclear how Governor Hochul will act, as she has signaled past support for a limited ban but has not commented on the broad language included in the proposed law. If the law is enacted, New York would join California, North Dakota, Oklahoma, and Minnesota in generally banning non-compete agreements.
