The Changing Landscape of Non-Compete Agreements in New York

In a rapidly evolving legal landscape, significant changes are on the horizon for non-compete agreements in New York. On June 20, 2023, the New York State Legislature passed a bill that, if signed by Governor Kathy Hochul, will usher in a transformative amendment to the New York Labor Law by introducing Section 191-d. This amendment aims to prohibit non-compete agreements and certain restrictive covenants, thereby voiding prior agreements and enabling covered individuals to seek legal recourse against employers who violate these provisions. This bold move signals a growing trend across the nation against the use of non-compete agreements and sets the stage for a new era of employment law.

Understanding the Proposed Changes

The proposed Section 191-d carries significant implications for employers and employees alike. At its core, the amendment prohibits employers from entering into non-compete agreements with covered individuals, who are broadly defined as those in positions of economic dependence and obligation to perform duties for the employer. This amendment goes beyond the Governor’s initial suggestion, encompassing all employees regardless of compensation.

Key Takeaways

1. Broad Definitions: The bill defines crucial terms such as “non-compete agreement” and “covered individual” broadly. The former pertains to any agreement or clause that restricts an individual’s employment post-termination, while the latter refers to individuals who perform work under conditions of economic dependence and obligation to their employer.
2. Limited Exceptions: The amendment allows for “fixed-term of service” agreements and provisions protecting trade secrets and confidential client information. However, these exceptions must not infringe upon fair competition.
3. Non-Retroactivity: The bill’s impact is prospective, applying only to non-compete agreements formed after its effective date, set at 30 days after approval.
4. Private Right of Action: Covered individuals have the right to bring legal action against employers who breach the provisions. They can seek to nullify non-compete agreements, obtain injunctive relief, and receive compensation for losses, damages, and legal fees.
5. Two-Year Statute of Limitations: The proposed amendment introduces a two-year timeframe for legal action. Interestingly, this timeline commences from the latest of various triggers, ensuring individuals have ample opportunity to contest non-compete agreements.
6. Unresolved Questions: While the proposed amendment offers significant progress, several uncertainties remain. The unresolved issues are its applicability to independent contractors, the permissibility of garden leave and equity forfeiture, and the treatment of post-employment agreements not to solicit or hire former employees.

Embracing a Changing Landscape

The sweeping changes proposed by the New York State Legislature reflect a broader national trend against non-compete agreements. This sentiment is shared by the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB), both actively scrutinizing and advocating restrictions on such agreements. The NLRB’s General Counsel, Jennifer Abruzzo, issued a memorandum asserting that non-compete agreements generally violate the National Labor Relations Act, except in cases narrowly tailored to protect proprietary information or managerial interests.

As employers and employees navigate this dynamic landscape, staying informed about the evolving legal framework is crucial. The potential enactment of the proposed Section 191-d in New York will undoubtedly shape the future of employment agreements in the state and may influence similar changes on a national scale.

In conclusion, the proposed changes to non-compete agreements in New York reflect a broader shift towards employee empowerment and fair competition. Employers and employees should prepare for a new era in employment law that prioritizes individual rights and encourages a level playing field for all parties involved. Stay tuned for updates on this groundbreaking development and its potential impact on the employment landscape, and call us with any questions you may have at 716.636.7600.