BUSINESS LAW: BANNING NON-COMPETITION AGREEMENTS IN NEW YORK
By: Daniel J. Fetter, Esq.
A bill currently sits on Governor Hochul’s desk which would amend the New York Labor Law and ban nearly all non-competition agreements for workers in New York State.
What is a non-competition agreement?
An agreement (or clause contained in an agreement) between an employer and a “covered individual” that prohibits such covered individual from obtaining employment after the conclusion of the employment relationship with the employer.
Who is a “covered individual”?
Any person performing work or services for the employer. This would apply to both employees and independent contractors.
Does this law invalidate existing non-competition agreements?
No. The law will be effective 30-days after it is signed by governor Hochul and applies to non-competition agreements entered into or modified on or after such effective date
Is there an exception for sale of business?
There is no “sale of business” exception that would allow owners who sell their business to agree to refrain from competing with the buyer – common practice in the world of sales and acquisitions. Notably, the California law which bans non-compete agreements includes such an exception. Does the bill’s silence on this issue mean that a business owner in New York can sell his/her business and immediately start a competing company? Not exactly. Based on the definition of “covered individual” (who this bill is aimed to protect), it does not appear that the legislative intent was to protect business owners selling their business. It’s not difficult to believe that this will be the subject of future litigation.
Are non-disclosure and non-solicitation agreements also banned?
The bill carves out exceptions for non-disclosure agreements that prohibit disclosure of trade secrets or confidential and proprietary client information, as well non-solicitation agreements with respect to clients of the employer that the covered individual learned about during his/her employment, provided that such agreements do not otherwise restrict competition.
What remedies are available to employees?
A worker subject to a non-competition agreement can bring a private cause of action against the employer. Such action must be brought within two (2) years of the later of: (1) when the non-competition agreement was signed; (2) when the covered individual learns of the non-compete agreement; (3) when the employment or contractual relationship is terminated; or (4) when the employer takes steps to enforce the non-compete agreement.
The court can void the non-compete agreement and order all appropriate relief, including enjoining the conduct of the employer; ordering payment of liquidated damages (not more than $10,000) and awarding lost compensation, damages, reasonable attorneys’ fees and costs.
For further information, reach out to your usual firm contact or contact the firm at (315) 471-8111.
This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.
