- June 26, 2023
- Alerts
A Ban on Non-Competes in New York Could Be Law…Soon
On June 20, 2023, the New York State legislature passed a bill (A01278) that would ban new non-compete restrictive covenants for most employees. The bill must still be signed into law and would take effect 30 days after being signed. If signed into law, New York would join a growing number of states, the FTC, and National Labor Relations Board (as previously reported by Garfunkel Wild here), that would ban non-compete agreements entered into or modified on or after the effective date of the law. This means that existing non-competes would remain enforceable, but employers would not be able to enter into new agreements going forward or modify existing ones without running afoul of the law. This could have a major impact on employers doing business in the State of New York.
Under the bill, 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.” The bill defines a “covered individual” 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.” This definition would cover employees, as well as independent contractors.
There are some limited exceptions that appear in the bill, including exceptions prohibiting the disclosure of trade secrets, and confidential or proprietary information. Additionally, the bill does not prohibit client non-solicitation agreements, so long as those agreements only prohibit solicitation of clients of the employer that the worker learned about during employment and the customer non-solicitation covenant does not effectively function to restrict competition. The bill is silent regarding restrictions on solicitation of employees.
Notably, the bill does NOT specifically mention exclusion of non-competes entered in the sale of business context. That said, our reading and interpretation of the proposed bill is that sale of business transactions would not be covered by the law because a sale transaction would not meet the definition of a “covered individual.” However, when a sale of a business takes place, it is common for the selling party to remain employed under an employment agreement. That employment agreement would be implicated by the law. This interpretation, however, is yet to be tested by the courts and Department of Labor.
The bill would create a private right of action and grants courts jurisdiction to void the non-compete agreement and grant other “appropriate relief,” including injunctive relief, liquidated damages (up to $10,000), lost compensation, damages, and reasonable attorney fees and costs.
Garfunkel Wild will be monitoring the status of the bill, any proposed changes, updates, or clarification to exceptions such as sale of business transactions, and, if applicable, the bill’s passage into law and effective date. You may consider reaching out to the Garfunkel Wild attorney with whom you work regularly to start preparing for the potential enforcement of the law.
Should you have any questions regarding the above, please contact the authors or the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.
Under the bill, 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.” The bill defines a “covered individual” 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.” This definition would cover employees, as well as independent contractors.
There are some limited exceptions that appear in the bill, including exceptions prohibiting the disclosure of trade secrets, and confidential or proprietary information. Additionally, the bill does not prohibit client non-solicitation agreements, so long as those agreements only prohibit solicitation of clients of the employer that the worker learned about during employment and the customer non-solicitation covenant does not effectively function to restrict competition. The bill is silent regarding restrictions on solicitation of employees.
Notably, the bill does NOT specifically mention exclusion of non-competes entered in the sale of business context. That said, our reading and interpretation of the proposed bill is that sale of business transactions would not be covered by the law because a sale transaction would not meet the definition of a “covered individual.” However, when a sale of a business takes place, it is common for the selling party to remain employed under an employment agreement. That employment agreement would be implicated by the law. This interpretation, however, is yet to be tested by the courts and Department of Labor.
The bill would create a private right of action and grants courts jurisdiction to void the non-compete agreement and grant other “appropriate relief,” including injunctive relief, liquidated damages (up to $10,000), lost compensation, damages, and reasonable attorney fees and costs.
Garfunkel Wild will be monitoring the status of the bill, any proposed changes, updates, or clarification to exceptions such as sale of business transactions, and, if applicable, the bill’s passage into law and effective date. You may consider reaching out to the Garfunkel Wild attorney with whom you work regularly to start preparing for the potential enforcement of the law.
Should you have any questions regarding the above, please contact the authors or the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.