On June 20, the New York state legislature passed a bill banning post-employment noncompetes, which Governor Kathy Hochul will likely sign, and which goes into effect 30 days afterward. This new legislation will make New York the fifth state to ban noncompetes, following California, Minnesota, North Dakota, and Oklahoma. Minnesota joined the list on May 24, demonstrating the accelerating number of states scrutinizing perceived abuses of post-employment restrictive covenants. Unlike recent legislation in other states, the New York measure does not explicitly preserve use of noncompetes in a sale of a business context. Also, while some states have allowed continued use of noncompetes for highly compensated employees, the New York law makes no such exception.

Any employment contract with a noncompete signed after the effective date is illegal, and the law gives individuals a right to sue for an injunction and liquidated damages up to $10,000, lost compensation, and attorneys’ fees. That suit may be filed any time within two years of the later of:

• The date the agreement was signed.
• The date the person learns of the noncompete.
• When employment is terminated.
• When the employer tries to enforce the agreement.

In addition to the large number of people employed by businesses in New York, over the years many financial industry employers have used New York as the choice of law provision for noncompetes with employees all over the U.S. This law will substantially change the way in which New York companies do business. For those with employees in states that still permit noncompetes, employers should review and revise their agreements so that New York is no longer the governing law.

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