June 23, 2023
In a serious improvement for employers, New York is poised to ban worker non-competition agreements. Governor Kathy Hochul is presently contemplating a invoice that was fast-tracked by the state legislature that voids “[e]very contract by which anybody is restrained from partaking in a lawful occupation, commerce, or enterprise of any type.” If signed, the invoice will amend the New York Labor Regulation to ban New York employers from coming into right into a non-compete settlement with any particular person who’s able of “financial dependence on, and beneath an obligation to carry out duties” for an employer. Governor Hochul beforehand expressed help for eliminating non-compete agreements for employees making beneath the median wage in New York, however the invoice she is contemplating applies to all workers in New York no matter compensation. If accredited by the Governor, the legislation shall be efficient 30 days later.
Beneath, we define the noteworthy takeaways from this seemingly radical change to New York legislation.
- Broad Protection. The invoice broadly defines “non-compete settlement” as “any settlement, or clause contained in any settlement, between an employer and a lined person who prohibits or restricts such lined particular person from acquiring employment, after the conclusion of employment with the employer included as a celebration to the settlement.” The definition of “lined particular person” is equally broad, defining that time period as “some other one who, whether or not or not employed beneath a contract of employment, performs work or providers for an additional particular person on such phrases and circumstances that they’re, in relation to that different particular person, able of financial dependence on, and beneath an obligation to carry out duties for, that different particular person.”
- Restricted Specific Exceptions. As drafted, the invoice expressly states that it doesn’t impression an employer’s capacity to enter right into a “fixed-term of service” with any lined particular person. It additionally states that employers might proceed to enter into agreements that defend commerce secrets and techniques, confidential and proprietary consumer data and prohibit solicitation of purchasers of the employer that the lined particular person discovered about throughout employment, “supplied that such settlement doesn’t in any other case limit competitors in violation of this part.”
- No Retroactivity. The invoice solely applies to non-compete agreements entered into on or after its efficient date, which is 30 days after the Governor’s approval.
- Non-public Proper of Motion. Lined people would have a personal explanation for motion in opposition to employers violating the legislation. Such people can be permitted to carry lawsuits in search of to void any non-compete that violates the legislation, acquire injunctive reduction in opposition to enforcement of the non-compete, and get well for misplaced compensation, damages, and cheap attorneys’ charges and prices. The invoice additionally offers that “the court docket shall award liquidated damages to each lined particular person affected beneath this part.” Liquidated damages are capped at $10,000.
- Two-12 months Statute of Limitations. The invoice offers a two-year statute of limitations, however employers must be conscious that litigation might come up lengthy after coming into into the offending settlement. It’s because the two-year interval runs from the newest of: (i) when the prohibited non-compete settlement was signed; (ii) when the lined particular person learns of the prohibited non-compete settlement; (iii) when the employment or contractual relationship is terminated; or (iv) when the employer takes any step to implement the non-compete settlement.
- Important Unresolved Questions. The invoice is redundant in locations and accommodates quite a few ambiguities. For instance, it doesn’t deal with whether or not it applies to unbiased contractors or whether or not paid backyard depart and fairness forfeiture preparations are permissible. The invoice additionally doesn’t outline a “mounted time period of service” settlement, and it’s silent in regards to the permissibility of post-employment agreements to not solicit or rent a former employer’s workers. The invoice additionally doesn’t expressly deal with non-competition agreements arising from the sale of a enterprise, that are widespread.
If enacted, that is undoubtedly a dramatic change for New York employers. New York will be a part of a number of different states which have primarily banned post-employment non-compete agreements, together with California, Minnesota, North Dakota, and Oklahoma. Lately, different jurisdictions similar to Colorado, Illinois, Maine, Maryland, Nevada, New Hampshire, Oregon, Rhode Island, Virginia, Washington, and Washington, D.C. have additionally restricted the validity of non-compete provisions based mostly on particular elements like compensation and worker classification. Moreover, there was elevated scrutiny on non-competes on the federal degree with the Federal Commerce Fee’s proposed new rule in search of to ban non-compete clauses and the Nationwide Labor Relations Board Common Counsel’s memorandum expressing her view that sure non-compete provisions in employment and severance agreements might violate the Nationwide Labor Relations Act.
 N.Y. A01278B § 191-d(a) (emphasis added), https://nyassembly.gov/leg/?default_fld=&leg_video=&bn=A01278&term=&Summary=Y&Actions=Y&Text=Y.
 FTC Proposes Rule to Ban Noncompete Clauses, Which Harm Employees and Hurt Competitors (Jan. 5, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition.
 NLRB Common Counsel Points Memo on Non-competes Violating the Nationwide Labor Relations Act (Might 30, 2023), https://www.nlrb.gov/news-outreach/news-story/nlrb-general-counsel-issues-memo-on-non-competes-violating-the-national.
The next Gibson Dunn attorneys assisted in making ready this consumer replace: Jason Schwartz, Harris Mufson, Tiffany Phan, and Emily Lamm.
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