In the wake of the Federal Trade Commission’s recent proposed nationwide ban on the use of noncompete agreements, the New York State Senate and Assembly are making efforts to eradicate noncompete and restrictive covenant agreements and provide remedies against employers who seek to enforce such agreements.
Background & Provisions
On January 13, 2023, the New York State Assembly introduced Bill No. A01278, which prohibited the use of noncompete agreements and certain restrictive covenants and created a cause of action that an employee “may bring … against any employer or persons alleged to have violated” the prohibition against noncompete agreements. On January 27, 2023, the New York State Senate introduced an identical bill, S3100. On May 23, 2023, New York State Senator Sean Ryan announced that the Senate Committee on Labor voted to advance S3100 to prohibit the use of noncompete agreements in New York.
The proposed legislation seeks to add new section 191-d, to Article 6 of the New York Labor Law that would ban noncompete agreements in New York State. Section 191-d covers individuals who fall under the definition of a “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 a position of economic dependence on, and under an obligation to perform duties for, that other person. Section 191-d defines noncompete agreements as “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.”
Due to the broad definition of noncompete agreements in the proposed legislation, there are concerns that its impacts also could affect broad non-solicitation and nondisclosure agreements. However, section 191-d places some limitation on its sweeping effect by stating that “[nothing] in this section shall be construed or interpreted as affecting … an employer to enter into an agreement with a prospective or current covered individual that … prohibits disclosure of trade secrets, disclosure of confidential and proprietary client information, or solicitation of clients of the employer that the covered individual learned about during employment.” Still, an employer should look at this limitation cautiously, as section 191-d strictly construes the application of the proposal’s limitation to circumstances when “such agreement does not otherwise restrict competition in violation of [section 191-d].”
A violation of the proposed section 191-d can have serious penalties. The courts will be allowed to permit covered individuals to void any such noncompete agreement, enjoin the conduct of any person or employer, order payment of liquidated damages, and award lost compensation, damages, reasonable attorneys' fees and costs. Although liquated damages are capped by $10,000, each affected individual would be entitled to an award of liquidated damages and the other remedies permitted by proposed section 191-d (actual damages, reasonable attorneys’ fees and costs).
A floor vote has not yet been scheduled on these proposed bills. Wilson Elser will monitor this situation and provide timely updates.
Once again, this development should provide an impetus for employers to revisit and review their employment agreements to ensure that, if they use restrictive covenants, they are carefully crafted and tailored to fit their needs and appropriate for the particular employee.