NYS Senate Passes Non-Compete Bill; At the NYS assembly – employment contract

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June 7, 2023 New York State Senate bill no SO3100 passedwhich, if signed, would prohibit non-competition agreements (“non-competition”) throughout the state without exception.

The bill defines a non-compete broadly as “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 employment with an employer that is a member of the agreement.” A “covered individual” is a person who “performs work or services for another person under such conditions that he is economically dependent on that other person and is obliged to fulfill obligations for another person, that other person.”

Employers would be breaking the law if they “seek, demand, demand or accept” a non-compete – not just if they try to enforce it. An aggrieved employee would have a private right of action against his employer for a variety of remedies, including injunctive relief, lost wages, punitive damages, compensatory damages up to $10,000, reasonable attorneys’ fees and costs, and other potential remedies. What’s more, the statute of limitations is a moving target that runs from the later of (i) when the covered person “learns” of the non-compete, (ii) when the non-compete is signed, (iii) when the employment or contractual relationship is terminated, or ( (iv) when the employer “takes any step to enforce” the non-compete. Significantly, the bill not only prohibits non-competes, but also appears to repeal existing non-competes, declaring that “(e)any contract by which any person is restrained from carrying on a lawful profession, trade or business of any kind is in this scope invalid.”

The account would No prohibit agreements that “fix ( ) the duration of the service for a fixed period of time or prohibit ( ) the disclosure of a trade secret, disclosure of confidential and proprietary client information, or solicitation of the employer’s clients of which the covered person learns in the course of employment.” Thus, restrictions on use would be permitted confidential information, as well as non-solicitation of clients, which is limited to clients that the employee “learned about in the course of employment”. The law is silent on provisions limiting the possibility of acquiring employees of a previous employer.

The bill leaves several important questions unanswered, including:

  • Would a person currently subject to a non-compete action be subject to the law’s enactment regardless of whether the employer seeks to enforce it given the retroactive repeal of the existing non-compete?

  • Since the Act is only intended to prohibit any non-compete that restricts employment “after employment with the employer”, how does this affect the non-compete applied to employee-shareholders in the context of a sale of a business?

  • What would be the fate of post-employment non-competes that rely on employee choice – i.e., where the employee can compete but gives up some compensation if they do so – if this bill becomes law?

  • How much leeway would employers have under this law to protect their confidential information and clients without “otherwise restricting (restricting) competition in violation” of the law?

  • Would restrictions on post-employment acquisitions be allowed if signed into law?

  • Since the proposed statute applies in the context of employment, it would seem that the non-compete would still apply to members of an LLC or partners in an LP, but it is unclear how broadly it would be interpreted.

The bill is now in the New York State Assembly. If it passes, Governor Hochul will have ten days to sign the bill into law. The governor’s office has not, as far as we know, commented publicly on the bill.

Originally published on June 13, 2023.

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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