Proposed Bill Outlawing Non-Compete Agreements in New York

A sweeping proposed bill (A1278B) amending the New York Labor Law to make unlawful any non-compete agreement has passed the state Assembly and is heading to New York Governor Hochul. If signed, the bill would cover all non-compete agreements entered into or modified 30 days after the bill’s effective date. Notably, the pending bill does not require the rescission of existing non-compete agreements.

The proposed bill provides that all non-compete agreements purportedly covering any person who performs work or services for another person (employee or contractor) are void and permit an affected individual to bring a civil action against an employer or person(s) who violate its provisions. In such action, a court is empowered not only to void a non-compete agreement but also to award an affected individual (employee or contractor) lost compensation, damages, attorneys’ fees, costs and up to $10,000 in liquidated damages. A civil action may be brought within two years of either: the date the prohibited non-compete was signed; the date the employee or contractor learned of the prohibited non-compete agreement; the date the employment or contractual relationship terminated; or the date the employer takes any steps to enforce a non-compete.

The proposed bill specifically does not prohibit an employer’s ability to enter into an agreement that: (1) establishes a fixed term of service; (2) prevents workers from disclosing an employer’s trade secrets and confidential information; or (3) prevents workers from soliciting the clients of the employer that the covered individual learned about during their employment. 

If signed, the amendment to the New York Labor Law would mark yet another jurisdiction to address the anti-non-compete wave among federal and state policymakers.  For example, the Federal Trade Commission is finalizing a rule that would largely ban non-compete agreements, the National Labor Relations Board’s General Counsel recently opined that in most circumstances, non-compete agreements for non-exempt employees violate federal labor law and the state of Minnesota recently enacted a ban on most employee non-compete agreements, effective July 1, 2023.

If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.

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