In a dramatic move, New York’s State legislature has passed legislation banning post-employment non-competition restrictions for New York employees. The article below, prepared by GT New York shareholders, Jonathan L. Sulds and Jerrold F. Goldberg, provides an overview of the implications for companies hiring New York employees.
New York State Law
In New York state, both houses of the Legislature have passed S.3100A/A.1278-B, which would add a new section 191-d to the Labor Law prohibiting “non-compete agreements and certain restrictive covenants.” The bill awaits the Governor’s signature. Thus, whether, and to what extent, restrictive covenants in the employment context will continue to be enforceable in New York, is, as of June 23, 2023, an open question.
The bill provides that section 191-d(2) of the Labor Law shall read:
No employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity, shall seek, require, demand or accept a non-compete agreement from any covered individual.
Section 191-d(1)(a) and (b) define both the term “non-compete agreement” and the term “covered individual”:
(a) “non-compete agreement” means 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; and
(b) “covered individual” means 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.
Section 191-d(3) declares void “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.”
Section 191-d(4) provides that a covered individual may bring a civil action within two years from when the prohibited non-compete was signed or when the covered individual learns of the non-compete or when the employment or contractual relationship terminates, or when the employer “takes any step” to enforce the non-compete. Under this subsection, a court is authorized to enjoin “the conduct of any person or employer,” order payment of liquidated damages, and award lost compensation, damages and reasonable attorney’s fees and costs. Notably, this provision (section 191-d(4)(b)) further states that a court “shall award” liquidated damages to every covered individual affected in addition to any other remedies, in an amount not more than $10,000.
The Legislature did carve out certain restrictive covenants from the scope of the prohibiton. Section 191-d(5) provides that the law should not be “construed or interpreted as affecting any other provision of federal, state, or local law, rule or regulation relating to the ability of an employer to enter into an agreement that establishes a fixed term of service or prohibits disclosure of trade secrets, disclosure of confidential and proprietary client information or 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.”
Pursuant to section 3 of the bill, the bill will be effective 30 days after it becomes law and will apply to contracts entered into or modified on or after such effective date.
Read the full GT Alert