New York Takes One Step Closer to Banning Non-Compete Agreements
On June 20, 2023, the New York Assembly passed a bill, already passed by the Senate, that would ban New York employers from entering into non-compete agreements with employees. The bill now goes to Governor Hochul for her consideration.
The New York state legislature’s action comes on the heels of nationwide efforts to ban non-compete agreements.
Four states, including California, Oklahoma, North Dakota, and most recently, Minnesota currently ban non-compete agreements.
At the federal level, in January this year, the Federal Trade Commission issued a proposed rule, that would ban non-compete agreements nationwide on the theory that such agreements constitute an “unfair method of competition” because they unduly restrain competition in the labor force. The FTC is still considering the proposed rule, after receiving more than 26,000 comments from the public.
In March 2023, the National Labor Relations Board, which governs the right of workers to engage in union-related activity, issued a guidance memo to its regional offices, directing them to consider enforcement action against overly broad non-compete agreements, on the theory that they tend to restrain employees from engaging in protected activity regarding workers’ rights. The NLRB action came on the heels of the board’s February 2023 decision, which found that an employer had engaged in an “unfair labor practice” by proffering severance agreements which contained overly broad confidentiality and non-disparagement provisions.
In New York City, on June 8, 2023, members of the City Council introduced a bill that, if enacted, would prohibit employers from entering into new non-compete agreements, and make all existing non-compete agreements unenforceable.
The most recently proposed New York State bill, if enacted as written, would:
- Apply to all New York employers and employees, including highly-paid management level employees.
- Give employees the right to bring a private right of action against their employers to void such agreements, and sue for lost compensation, liquidated damages of $10,000, and attorney’s fees.
- Would only apply to agreements entered into or modified after the date the law goes into effect, so it would not affect existing agreements.
- Not affect the ability of employers to enter into confidentiality, trade secret, and non-solicitation of clients agreements.
Employers should review their existing agreements to determine whether they need to make any changes in light of these developments. Employers not based in New York who have agreements with New York choice of law provisions might want to consider changing the choice of law to a different state which allows non-compete agreements. Employers should review their confidentiality and non-disparagement provisions to ensure they are not so overly broad that they run afoul of the NLRB’s most recent decisions and guidance. Employers with employment agreements that contain both non-compete provisions and other provisions relating to their employment (such as compensation or duties) may want to consider separating the non-compete agreement provisions into a separate agreement, to avoid the possibility that a court might later void the entire agreement.