The New York Legislature is ready to make one other try to ban non-competes for all however extremely compensated people. On the finish of the 2023 legislative session, the New York Legislature handed a invoice that will have banned non-compete agreements for all staff no matter wage or earnings stage. Governor Kathy Hochul vetoed this invoice whereas expressing her help for a extra restricted ban stating that she wished to “strike a stability” between defending middle-class and low-wage staff and “permitting New York’s companies to retain extremely compensated expertise.”
On February 10, 2025, New York State Senator Sean Ryan launched a brand new invoice (S4641) that will ban non-compete agreements that responds to a few of Gov. Hochul’s criticisms of the earlier invoice.
The Proposed Ban Stays Very Broad
Much like the earlier invoice, the definition of “non-compete settlement” is extremely broad. The invoice purports to use to “any settlement, or clause contained in any settlement, between an employer and a lined person who prohibits or restricts such lined particular person from acquiring employment, after the conclusion of employment with the employer.” Primarily based on this definition, the invoice might be interpreted to use to forfeiture-for-competition, garden-leave, and different comparable covenants used to guard aggressive pursuits along with conventional non-competes.
Regardless of the broad definition of “non-compete settlement,” the invoice additionally retains some exceptions from the earlier invoice. Particularly, the invoice permits agreements that: (a) set up a hard and fast time period of service and/or exclusivity throughout employment; (b) prohibit disclosure of commerce secrets and techniques; (c) prohibit disclosure of confidential and proprietary consumer data; or (d) prohibit solicitation of purchasers of the employer. Notably, the invoice is silent on whether or not worker non-solicitation agreements will stay enforceable.
New Scope of Lined Workers
Whereas the earlier model of the non-compete invoice didn’t exclude any people from protection, this invoice excludes extremely compensated staff. The invoice applies to well being associated professionals and any particular person “aside from a extremely compensated particular person who, whether or not or not employed below a contract of employment, performs or has carried out work or companies for an additional particular person on such phrases and situations that they’re, in relation to that different particular person, able of financial dependence on, and below an obligation to carry out duties for, that different particular person.” The time period “extremely compensated particular person is outlined as “any particular person who’s compensated at a median annualized charge of money compensation … equal to or better than [$500,000] per yr.” The time period “well being associated skilled” consists of physicians, doctor assistants, chiropractors, dentists, perfusionists, veterinarians, bodily therapists, pharmacists, nurses, podiatrists, optometrists, psychologists, occupational therapists, speech pathologists, audiologists, and psychological well being practitioners.
Sale of Enterprise Exception Included
The invoice additionally consists of an specific carve-out for non-compete agreements entered within the context of a sale of a enterprise. The brand new invoice doesn’t prohibit “the inclusion and enforcement of non-compete agreements or different comparable covenants within the sale of the goodwill of a enterprise or the sale or disposition of a majority of an possession curiosity in a enterprise by a companion of a partnership, a member of a restricted legal responsibility firm … or any such particular person or entity proudly owning fifteen % or extra possession curiosity in a enterprise.”
One of many main criticisms of the earlier invoice was that it didn’t embrace such a carve-out.
Necessary Discover Requirement & Selection of Legislation Restrictions
The invoice would additionally add a number of further compliance necessities. First, the invoice mandates that employers inform staff of their “protections and rights” below the non-compete ban by conspicuously posting a discover to be developed by the New York Division of Labor. Second, the invoice would prohibit choice-of-law/choice-of-venue provisions that “have the impact of avoiding or limiting” the non-compete ban for lined people who lived or had been employed in New York for a minimum of 30 days earlier than the termination of their employment, together with “people who labored remotely in one other state however who reported to a New York worksite or workplace or who reported to a New York-based supervisor.”
A Clarified Personal Proper of Motion Stays
The brand new model of the invoice would allow a lined particular person to convey a civil motion for violations of the proposed ban on non-compete agreements inside two years of when (1) the non-compete settlement was signed, (2) the lined particular person discovered concerning the non-compete settlement, (3) when the employment or contractual relationship is terminated, or (4) when the employer takes steps to implement the non-compete settlement. A courtroom would have jurisdiction to void the non-compete settlement at problem, enjoin the conduct of any entity looking for to implement a void non-compete, award compensatory damages/damages for misplaced compensation, award attorneys’ charges and prices, and order the cost of as much as $10,000 in liquidated damages for every lined particular person or well being associated skilled.
No Retroactive Impact
Lastly, the invoice retains the provisions indicating that it will solely apply prospectively. The invoice states that it will go into impact 30 days after turning into legislation and can be relevant to contracts entered into or modified on or after the efficient date.
Key Takeaways
There are nonetheless a number of steps that have to be met earlier than this invoice turns into legislation. On the time of writing, the invoice has not been voted out of committee. That mentioned, there’s clearly political will in Albany to curb the usage of non-compete agreements. Employers ought to keep knowledgeable concerning the standing of this invoice and assessment the restrictive covenants they’ve in place to find out what affect the invoice would have on such agreements if handed. We’ll monitor developments on this space and supply updates as they turn into obtainable.