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What Relief is Available if the New York Governor Bans Noncompete Agreements Statewide?

Employment Law

After the conclusion of the 2023 legislative session, both chambers of the New York State legislature passed a bill that, if signed into law by Governor Kathy Hochul, would be a radical change prohibiting almost all new non-compete agreements for employees. The law would take effect 30 days after being signed into law, and it would apply to contracts entered or modified after the effective date.

Given that Governor Hochul expressed earlier this year her support of a non-compete ban, and that a number of jurisdictions are already prohibiting or significantly limiting the use of employment non-compete agreements, the passage of this bill in the Empire State may be imminent. At Guzov, LLC our labor and employment lawyers are closely following this bill as it impacts the negotiation and preparation of employment contracts and termination agreements for employers as well as for high-income executives, because although Governor Hochul’s prior support for eliminating non-compete agreements was for workers making below the median wage in New York, the bill she is considering now applies to all employees in New York irrespective of compensation.

It is important to be ready for this tremendous shift in New York’s employment law, to seek counsel on pending or future employment contracts, and to know what to anticipate in terms of potential litigation.

If passed, the bill would amend the New York State Labor law, adding language (a new Section 191-d) to:

(i) prohibit employers, corporations, partnerships, limited liability companies or other entities from seeking, requiring, demanding or accepting a “non-compete agreement” from any “covered individual” and

(ii) provide that every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.

How does the bill define “non-compete agreement”?

A “non-compete agreement” is defined in the bill as any agreement, or clause contained in any agreement, between an employer and a covered individual, that prohibits or restricts the individual from obtaining employment after the conclusion of employment with the employer.

A “covered individual” is defined 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

What relief is available for the covered individual through litigation?

The bill creates a private right of action for covered individuals to sue for violations, allowing them to seek all appropriate relief such as:

  • lost compensation
  • damages
  • reasonable attorney’s fees and cost
  • voiding the prohibited non-compete

The bill also provides that every covered individual is entitled to no more than $10,000 in mandatory liquidated damages in addition to any other remedies permitted for violations.

Several issues in the bill are not yet clear

On its face, the bill does not specify if the prohibitions apply in the context of the sale of a business, or to non-competition restriction in an incentive or benefit plan, or whether this applies to independent contractors. In addition, the bill does not state whether employees will be allowed to void agreements prior to the effective date as a matter of public policy.  There is also language regarding confidentiality or client non-solicitation provisions that will need to be specifically defined.

If you would like to discuss this bill and its impact on your business, please contact us to schedule a consultation.

This blog was published on July 31, 2023.

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