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New York State Senate Passes Prohibitions on Non-Competes

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New York, State Developments, Unfair Competition and Trade Secrets

New York State Senate Passes Prohibitions on Non-Competes

June 12, 2023
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Kelly M. Cardin headshot
Kelly M. Cardin New York
Stamford Author
 
Matthew P. Gizzo headshot
Matthew P. Gizzo New York
Dallas Author
 
Caitlin L. O'Fallon headshot
Caitlin L. O'Fallon New York Author
 
Jessica R. Schild headshot
Jessica R. Schild New York Author

Monumental changes to New York law on non-compete agreements appear
imminent. On June 7, 2023, the New York State Senate approved two
bills concerning non-compete agreements. The first, Bill No. S3100A,
proposes a ban on all non-compete agreements, while the second, Bill
No. S6748, proposes a limited ban of certain non-compete agreements.
Both bills are currently pending before the New York State Assembly.
If the State Assembly passes the bills, they will be sent to Governor
Kathy Hochul for her sign-off, which could come as early as this
week.

Quick Hits

  * On June 7, 2023, the New York State Senate gave its approval to
    two bills that would prohibit or limit the use of non-compete
    agreements in New York.
  * The first bill, S3100A, would ban post-employment non-compete
    agreements between employers and workers; the second bill, S6748,
    would, among other things, prohibit employers from entering into
    or maintaining non-compete agreements with workers, absent a
    "good faith basis" to believe a non-compete agreement is
    enforceable.
  * The bills must pass the New York State Assembly and receive final
    approval from New York Governor Kathy Hochul to become law.

Bill No. S3100A

If enacted, Bill No. S3100A would prohibit an employer from entering
into a non-compete agreement with an employee, independent
contractor, or "any other person who, whether or not employed under a
contract of employment, performs work or services" (collectively,
"covered individuals") for the employer. Covered individuals would
have a private cause of action against employers that violate the law
and, if found liable, employers would be subject to up to $10,000 in
liquidated damages for each violation, as well as payment for lost
compensation, damages, and attorneys' fees and costs. The legislation
provides for a two-year statute of limitations, triggered by the
later occurrence of one of the following events: (i) when the
agreement was signed; (ii) when the covered individual learns of the
prohibited agreement; (iii) when the employment or contractual
relationship is terminated; or (iv) when the employer takes any step
to enforce the prohibited agreement. S3100A would become effective
thirty days after being signed into law.

Bill No. S6748

Bill No. S6748 is generally aimed at preventing the establishment of
monopolies, monopsonies, and restraints of trade.

If enacted, the provisions of S6748 would prevent employers from
entering into or maintaining non-competition agreements with workers,
including independent contractors, absent a "good faith basis" to
believe that a non-compete agreement is enforceable. The bill does
not expand upon what constitutes a "good faith basis." The
legislation would also define "non-compete agreement" broadly to
include any "de facto" agreement that "has the effect of prohibiting
[covered individuals] from seeking or accepting employment[,]" such
as overbroad non-disclosure agreements and training-repayment
obligations. Employers would also be required to rescind
unenforceable non-compete agreements with both current and former
workers, and they would be required to provide notice to each worker
that an agreement is no longer in effect. If enacted, the law would
take effect immediately.

Next Steps

Ogletree Deakins' New York office and Unfair Competition and Trade
Secrets Practice Group will continue to monitor developments and will
provide updates on the New York and Unfair Competition and Trade
Secrets blogs as additional information becomes available.

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