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The Non-Compete Ban is Coming to New York

A non-compete ban is likely coming to New York within the next 60 days. On June 20, 2023, the New York State Assembly passed an act to ban non-compete agreements in New York State. The New York State Senate previously passed the same legislation. It is anticipated that Governor Hochul will sign the act into law within the next 30 days, with the ban becoming effective 30 days after signing.

The new legislation will amend section 191-d of the New York Labor Law (“NYLL”) to ban “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 . . .” Covered individuals includes “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.” In other words, non-compete provisions or agreements that restrict an employees’ post-employment opportunity to find alternative employment will be unlawful and any such provision in an employment agreement will be void. In addition, there is no carve out for post-sale non-compete agreements for owners of companies who sell their companies. The legislation will not be retroactive and will only apply to agreements entered into after the effective date of the legislation.

In addition to voiding such provisions, the new legislation provides covered individuals with a private right of action against any employer who violates section 191-d of the NYLL. Like the National Labor Relations Board’s ban on non-disparagement provisions, it appears that the mere proffer of such a proposed provision would constitute a violation of the law. Employees or former employees may seek a broad range of relief for any such violation including but not limited to: (1) injunctive relief; (2) liquidated damages of not more than $10,000; (3) lost compensation: (4) damages; and (5) reasonable attorneys and costs. Furthermore, courts may be more likely to construe and interpret existing non-compete provisions more narrowly in light of the new public policy proclamation prohibiting them.

While the legislation appears to be the most restrictive anti-non-compete provision in the country, there are several carve-outs. For example, the legislation expressly permits employers to utilize agreements that prohibit disclosure of trade secrets, confidential and proprietary client information or solicitation of clients of the employer that the covered individual learned about during employment. The legislation is silent about provisions restricting the solicitation of employees.

The next 30-60 days provides employers with an opportunity to reevaluate their existing non-compete provisions as well as potentially enter into new agreements with employees before the effective date of the legislation. Furthermore, while the legislation does not directly address these scenarios, it is possible, although not certain, that other mechanisms such as garden leave may be utilized to achieve similar results.

Kane Kessler has extensive experience with restrictive covenants, including non-compete agreements. If you have any questions, please contact Kane Kessler’s Labor & Employment Practice Group, Jeffrey G. Douglas at 212 519-5183, or jdouglas@kanekessler.com, Valerie K. Ferrier at 212 519-5107, vferrier@kanekessler.com, or Kane Kessler’s Litigation Practice Group, Dana M. Susman at dsussman@kanekessler.com or Jonathan M. Sabin, at jsabin@kanekessler.com.

This memo is provided for informational purposes only. It is not intended as legal advice and readers should consult counsel to discuss how these matters relate to their individual circumstances.