New York State Legislature Passes Noncompete Ban
By Jill Kahn Marshall and Anna Beckelman
On June 20, 2023, the New York State Assembly passed a bill that had been approved earlier this month by the State Senate, which will broadly prohibit employers’ use of noncompete agreements in the state. The bill has been sent to Governor Kathy Hochul for signature. While many expect the Governor to sign the measure, which had broad support in the State Legislature, opponents of the bill’s broad scope hope she may propose its reach be narrowed. If the bill is signed into law, New York will become a leader in the current trend to curb the use of noncompete agreements, joining California, which has long had such a ban in place. It will also join the FTC, which has proposed such a ban but is currently tied up reviewing public comments on the matter, and the National Labor Relations Board, which issued a memorandum last month stating that overbroad noncompetes violate the National Labor Relations Act.
Under the proposed New York legislation, businesses will be prohibited from entering into noncompete agreements with “any other person who . . . 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.” The prohibition could therefore apply not only to employees, but independent contractors as well. The bill provides aggrieved individuals with a private right of action with a two-year statute of limitations and entitles those who prevail to liquidated damages capped at ten thousand dollars. The new law would apply only to agreements entered into after its effective date, leaving prior noncompete agreements intact for now. Unlike the California law, the New York bill contains no exemption for the sale of a business, leaving a purchaser unable to prevent a seller from working with a competitor shortly after the sale.
The bill explicitly states that it does not prohibit agreements for a fixed term of service, or those restricting the disclosure of trade secrets, confidential and proprietary client information, or the solicitation of clients of the employer that the individual learned about during employment, provided that such agreements do not otherwise restrict competition in violation of the law. While the allowance of a “fixed term” has led some observers to believe that garden leave provisions, in which an employee is paid for a fixed term during which they cannot work for a competitor, would be permissible, the language as drafted is vague without further guidance from the State Legislature. The bill also does not address the legality of agreements that require employees to forfeit equity if they work for a competitor. Lastly, the bill is silent as to agreements regarding the non-solicitation of employees, such that those shall presumably remain enforceable if the law is passed.
While this bill moved under the radar to sweep relatively quickly through the State Legislature, employers and employees should not underestimate its impact if signed into law. Noncompete agreements are currently standard throughout many industries in New York, including but by no means limited to, the finance, technology, and healthcare industries. Employers should closely watch these developments and be ready to quickly amend their customary agreements to remove these restrictions if passed. Employees should stay abreast of their rights in order to effectively negotiate with respect to post-employment restrictions.
This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Partner Jill Kahn Marshall, who counsels individuals and corporations in the areas of employment law, litigation and dispute resolution, and healthcare. Ms. Marshall is admitted to practice law in New York and Massachusetts, as well as the District Courts for Massachusetts and the Southern and Eastern Districts of New York.