New York Moves Closer to Banning Employee Non-Compete Agreements

On June 20, 2023, the New York State Assembly passed Measure A1278B, which, if enacted, would effectively ban all post-employment non-compete agreements in the state. As the bill heads to Governor Kathy Hochul’s desk, New York is on the doorstep of becoming the latest entry in a growing list of states to ban non-competes.

Under the proposed law, all post-employment non-competes would be void without exception. The bill broadly defines non-competes as any agreements or provisions that restrict “covered individuals” – which include all employees, contractors, and others who perform services for employers, regardless of their roles or salaries – from obtaining new employment after their existing employment terminates. The bill contains exceptions for customer non-solicitation provisions and provisions prohibiting the disclosure of trade secrets and other confidential client information but only to the extent that they do not “otherwise restrict competition in violation of this section.”

The bill provides for significant remedies when an employer attempts to impose or enforce a non-compete upon an employee. It authorizes courts to award prevailing employees’ injunctive relief, liquidated damages of up to $10,000, lost compensation damages, and attorneys’ fees and costs. There is a two-year limitations period for employees to sue, running from the later of (1) having to sign the invalid agreement or learning of its existence; (2) terminating the employment relationship; or (3) being subjected to the former employer’s attempt to enforce the agreement.

If Governor Hochul signs the bill into law, New York will become the latest in a long line of states to partially or completely ban non-competes. Most recently, Minnesota banned nearly all non-compete agreements, with its law taking effect on July 1. California, North Dakota, and Oklahoma also categorically ban non-compete agreements, with numerous additional states significantly limiting their scope.

These state laws mirror the federal government’s recent efforts to curb non-competes. The Federal Trade Commission is finalizing a rule fundamentally banning non-competes nationwide, while the General Counsel of the National Labor Relations Board recently opined that most non-compete provisions violate employee rights under Section 7 of the National Labor Relations Act.

Notably, unlike the FTC’s proposed federal non-compete ban, which would be retroactive, New York’s proposed bill would only apply to agreements executed after the law takes effect. Accordingly, even if Governor Hochul signs the bill into law, New York employers would not have to worry about voiding existing non-compete agreements.

While Governor Hochul has not yet stated on the record whether she intends to sign the bill into law, in January 2022, she declared her intent to propose legislation to eliminate non-compete agreements for workers making below the median wage in New York State. While Measure A1278B is a far more sweeping non-compete ban than her initial proposal, there is a chance that it will become law. Buchanan will continue to monitor the bill’s status and provide an update if it becomes law.