New York may join several other states that have essentially banned post-employment non-compete agreements, including California, Minnesota, North Dakota, and Oklahoma. Governor Kathy Hochul is considering a bill that was fast-tracked through the state legislature that voids “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.”
Vast Coverage
The bill, if signed, will ban restrictive employment contracts for all “covered individuals.” The bill is exceptionally broad, defining a “non-compete agreement” 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.”
Equally as broad, the bill defines a “covered employee” as:
“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.”
Surprisingly, the bill provides no exception for non-competes when related to the sale of a business. The bill leaves many unanswered questions, such as whether it applies to independent contractors and whether paid garden leave and equity forfeiture arrangements are permissible.
Timeline for Effect
If signed by the Governor, the bill will become effective thirty (30) days later and will only ban future non-competes. Thus, any non-compete agreement willfully entered by employers and employees before the effective date will remain binding under New York law.
Private Action Against Employers Who Violate
Covered individuals would have a private cause of action against employers and will be permitted to bring lawsuits seeking to void any non-compete, obtain injunctive relief against enforcement of the non-compete, and recover lost compensation, damages, and reasonable attorneys’ fees and costs. The bill also provides that “the court shall award liquidated damages to every covered individual affected under this section” but capped liquidated damages at $10,000.
The two-year statute of limitations for bringing a lawsuit will run from the latest of:
- When the prohibited non-compete agreement was signed.
- When the covered individual learns of the prohibited non-compete agreement; (iii) when the employment or contractual relationship is terminated.
- When the employer takes any step to enforce the non-compete agreement.
Confidentiality Agreements Remain Intact
The bill does allow for employers and employees to continue to enter into agreements that protect trade secrets, confidential and proprietary client information and prohibit the solicitation of clients of the employer that the covered individual learned about during employment, “provided that such agreement does not otherwise restrict competition in violation of this section.”
Despite carving out an exception for confidentiality agreements, the bill is silent about the permissibility of post-employment agreements not to solicit or hire former employer’s employees.
Current State of Non-Compete Law
If signed, the change will have a drastic impact on New York employers. To date, California, Minnesota, North Dakota, and Oklahoma all have similar laws banning the use of non-compete agreements. Colorado, Illinois, Maine, Maryland, Nevada, New Hampshire, Oregon, Rhode Island, Virginia, Washington, and Washington, D.C. have also limited the validity of non-compete provisions based on specific factors like compensation and employee classification.
Federally, the U.S. Federal Trade Commission published a proposed rule at the start of 2023 that would impose a near-complete ban of the use of employee non-compete agreements. General Counsel for the National Labor Relations Board, Jennifer Abruzzo, has also spoken out against non-compete agreements, arguing that except in limited circumstances, employee non-compete agreements may violate the National Labor Relations Act.
As the laws continue to change drastically at both a state and federal level, employers must be updating their current employment agreements and policies. For assistance in ensuring your contracts and policies comply, please contact Rob Gilmore (RSG@kjk.com; 216.736.7240) or another attorney within KJK’s Labor & Employment practice group.