New York Non-Compete Law: What It Would Do

Legislators in New York have passed a bill that would prohibit non-compete agreements. Governor Kathy Hochul has expressed support for “banning agreements that limit workers’ ability to move and work freely,” but it is unclear if she will sign this version of the legislation.

If enacted, the measure would:

• Prohibit Entering into Future Non-Compete Agreements. The bill prohibits employers from seeking, requiring, demanding or accepting a “non-compete agreement” from any “covered individual.”
  • “Non-compete agreement” is defined broadly to include “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 individual” 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.”
• Apply to Future Agreements. The bill would take effect 30 days after the governor signs it into law. The bill says it applies to contracts entered into or modified on or after the effective date. Thus, it appears that the bill is not retroactive and, on its face, does not invalidate existing non-compete agreements. However, where actions are brought to enforce pre-existing non-competes, we expect that arguments will be made against enforcement on the additional ground that non-competes cause injury to the public based on the stated justification for the bill: “Non-compete agreements have a negative effect on the labor market and economy of New York State. They prevent workers from seeking employment at entities that may be a better fit, and they provide employers from providing more competitive benefits and wages, because their workforce cannot seek employment elsewhere.”
• Give Covered Individuals the Right to Sue. The bill provides covered individuals with a private right of action against employers alleged to have violated the law. It also gives a court the power to void any prohibited non-compete agreement and award various forms of relief including injunctive relief, liquidated damages of no more than $10,000, lost compensation, damages and reasonable attorneys’ fees and costs.
• Leave Confidentiality and Customer Non-Solicitation Agreements in Place. Agreements that prohibit disclosure of trade secrets, confidential or proprietary information are valid. Customer non-solicitation agreements remain valid, provided they only prohibit solicitation of customers that the worker learned about during employment and provided they are not so restrictive as to act as de facto non-compete agreements.
• Have an Unclear Impact on Garden Leave, Employee Non-Solicitation and Equity Forfeiture Provisions.
  • Notably, the bill does not specifically address garden leave provisions, employee non-solicitation provisions, or forfeiture provisions in equity agreements tied to non-competition. However, there would appear to be good arguments that these types of provisions generally do not meet the definition of a “non-compete agreement” and are not covered by the bill.

Want to learn more? Contact one of the authors or your Orrick relationship partner.