New Legislation in New York: The Ban on Non-Compete Agreements

A Game Changer for Workers in New York State

In a significant move, New York State is on the verge of implementing a sweeping ban on non-compete agreements. The state legislature recently passed a bill that, if signed by Democratic Governor Kathy Hochul, would outlaw almost all non-compete agreements for workers of all salary levels and job functions. This progressive legislation is expected to bring about a seismic shift in the employment landscape.

The Road to Ban: Governor Hochul’s Support and Legislative Process

Governor Hochul has been a vocal advocate for a non-compete ban for low-wage workers since January 2022. However, the bill under consideration goes beyond that. It aims to render any non-compete agreement signed or modified after the effective date of the bill unlawful. Once the Governor signs the bill, it will take effect within 30 days.

Extensive Coverage: Who is Affected?

The proposed ban extends to nearly all employees and contractors based in New York. The legislation explicitly states that any agreement restraining individuals from engaging in a lawful profession, trade, or business will be considered void. Employers or their representatives will be prohibited from seeking, requiring, demanding, or accepting non-compete agreements from any covered individual.

Defining Key Terms: Non-Compete Agreements and Covered Individuals

To fully comprehend the scope of the ban, it is crucial to understand the terms “non-compete agreement” and “covered individual” as defined by the bill. A non-compete agreement refers to any agreement or clause that restricts a covered individual’s job prospects after leaving their current employment. On the other hand, a covered individual is defined as someone who, regardless of contractual employment, performs work or services for another on terms that establish an economic dependence and an obligation to perform duties.

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Exceptions and Considerations

While the ban is comprehensive, there are a few exceptions that warrant attention. These exceptions include fixed-term agreements that establish a period of service (allowing for specific types of “garden leave” agreements), non-disclosure of trade secrets or confidential client information, and non-solicitation of clients acquired during employment. It is important to note that non-competes as part of a business sale are not explicitly excluded, but their applicability may depend on the context and the individual involved.

Unanswered Questions: Non-Solicitation Agreements and Forfeiture-for-Competition Arrangements

The bill does not specifically address employee non-solicitation agreements. However, it is unlikely that agreements prohibiting the solicitation of other employees would be considered non-compete agreements under this legislation. Furthermore, the impact of the ban on forfeiture-for-competition arrangements remains uncertain. With the potential for future guidance or litigation, these arrangements may face increased scrutiny.

The Legal Landscape: Remedies and Retroactivity

The introduction of this ban grants covered individuals the ability to pursue legal action. They may file civil claims within two years of the prohibited non-compete agreement being signed, discovered, or when the employment or contractual relationship ends. New York courts will have the authority to void illegal non-compete agreements, issue injunctions against individuals or employers, award compensation for damages and lost earnings, and order the payment of reasonable attorneys’ fees and costs. Liquidated damages will be capped at $10,000.

Regarding retroactivity, the bill explicitly applies to contracts entered into or modified on or after the effective date, indicating that retroactivity is not a consideration.

What Lies Ahead

As stakeholders eagerly await Governor Hochul’s decision, it is essential to stay informed about this groundbreaking piece of legislation. Our team at Garrity Traina will closely monitor the situation and provide updates. If you have any questions or need guidance on how the new non-compete ban may impact your company, please reach out to one of our experts. We are here to help navigate through these changes.

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