By:  Ty Hyderally, Esq., Jennifer Vorih, Esq., and Adela Barbura

On June 20, 2023, the New York State Assembly (“Assembly”) passed Assembly Bill A1278B, to create a broad ban on non-compete agreements. The New York State Senate previously passed the bill (as S3100A), which would prohibit employers from using non-compete agreements and certain restrictive covenants after a worker’s employment ends. If New York Governor Kathy Hochul signs the bill into law, it will take effect 30 days later, and New York will join California, Oklahoma, North Dakota, and Minnesota in protecting employees by banning noncompete agreements.

As defined in the bill, a non-compete agreement is “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.” 2023 N.Y. Assembly Bill A1278B at 1:5-9.

Due to the growing trend of employers requiring non-compete agreements, the bill permits covered individuals to seek civil action against their employers who violate the bill’s provisions. It prohibits employers from seeking, requiring, demanding, or accepting “a non-compete agreement from any covered individual.” 2023 N.Y. Assembly Bill A1278B at 1:17-18. The bill defines “covered individuals” as any “person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that 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.” 2023 N.Y. Assembly Bill A1278B at 1:10-14. The bill would apply to all employees, as well as independent contractors.

The bill would apply prospectively to non-compete agreements “entered into or modified on or after [the] effective date.” 2023 N.Y. Assembly Bill A1278B at 2:50-51. As an amendment to current NY labor laws, contracts “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind” will be voided. The bill grants courts jurisdiction to void non-compete agreements and order relief, which includes “enjoining the conduct of any person or employer; ordering payment of liquidated damages; and awarding lost compensation, damages, reasonable attorneys’ fees and costs.” 2023 N.Y. Assembly Bill A1278B at 2:16-18.

Under the bill, employers cannot enter into agreements which “prohibit[] or restrict[]” covered individuals from securing employment following the termination of their current employment. 2023 N.Y. Assembly Bill A1278B at 1:7. However, the bill does not provide a clear definition of the term “restrict,” which leaves room for uncertainty as to what agreements, other than non-compete agreements, would be banned.

The bill closely follows recent administrative agency efforts regarding non-compete agreements from both the Federal Trade Commission (“FTC”) and the General Counsel of the National Labor Relations Board (“NLRB”). The FTC recently proposed regulations that would ban non-compete agreements and ultimately supersede state laws. Additionally, the NLRB has recently come down against overbroad non-compete agreements for violating the National Labor Relations Act (“NLRA”), as they interfere with rights granted to employees under the NLRA.

The proposed law is a result of a nationwide trend against non-competes which empowers employees and prohibits employers from enforcing agreements that restrict employees’ opportunities for obtaining future employment.

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