iNew York State may soon join the growing list of jurisdictions restricting or banning noncompete agreements. On June 7, 2023 the New York State Senate passed S 3100A (the “Bill”), which would prohibit employers from seeking, requiring, demanding, or accepting certain noncompete agreements.
If adopted and signed into law, the Bill would significantly change the landscape for New York employers, in part because the legislation uses broad–and sometimes vague–definitions. The Bill defines “non-compete agreement,” 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 the conclusion of employment with the employer included as a party to the agreement.” Although the Bill specifically and explicitly still allows employers to enter into agreements that prevent the “covered individual” from disclosing trade secrets or confidential and proprietary information, and that prohibit the “covered individual” from soliciting the employer’s clients, it is silent as to whether or not agreements can contain prohibitions on non-solicitation of employees.
Similarly broad, a “covered individual” is defined as “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.” This language suggests that the Bill’s provisions could apply to independent contractors in addition to employees, but does not answer whether companies could still enter into noncompete agreements as part of a sale of business transaction with owners who do not actually perform services on behalf of the company.
The Bill’s impact would also be significant, because it provides a “covered individual” with a private cause of action against a person or employer who is claimed to have violated the terms of the legislation. Importantly, the Bill provides for a two-year statute of limitation for such claims, starting from the later of: (i) when the agreement was signed; (ii) when the “covered individual” learns about the noncompete agreement; (iii) when the agreement or employment relationship is terminated; or (iv) when the employer attempts to enforce a noncompete agreement. The Bill also gives courts the authority to void any unlawful noncompete agreement; enjoin the conduct of any person/employer; award lost compensation, damages, and reasonable attorney’s fees; and order the payment of liquidated damages. While the award of liquidated damages is capped at $10,000, the award of liquidated damages appears to be mandated as the Bill states that the court “shall” award liquidated damages to every affected “covered individual.”
Although the State legislature adjourned on June 10, 2023 without the State Assembly adopting the Bill, the Assembly may yet reconvene before the end of this month to address outstanding matters. If the chamber reconvenes and passes the Bill later this month, it will go to New York’s Governor, Kathy Hochul, for signature. Governor Hochul has shown support for limitations on noncompete agreements in the past. If signed into law, the Bill would take effect on the 30th day after it becomes law and would apply to contracts entered into or modified on or after such effective date. If the Assembly takes no further action on the Bill, however, it will die there. Epstein Becker Green attorneys are continuing to monitor the situation for developments.
