New York State Senate Passes Prohibitions on Non-Competes

Monumental changes to New York law on non-compete agreements appear imminent. On June 7, 2023, the New York State Senate approved two bills concerning non-compete agreements. The first, Bill No. S3100A, proposes a ban on all non-compete agreements, while the second, Bill No. S6748, proposes a limited ban of certain non-compete agreements. Both bills are currently pending before the New York State Assembly. If the State Assembly passes the bills, they will be sent to Governor Kathy Hochul for her sign-off, which could come as early as this week.

Quick Hits

• On June 7, 2023, the New York State Senate gave its approval to two bills that would prohibit or limit the use of non-compete agreements in New York.
• The first bill, S3100A, would ban post-employment non-compete agreements between employers and workers; the second bill, S6748, would, among other things, prohibit employers from entering into or maintaining non-compete agreements with workers, absent a “good faith basis” to believe a non-compete agreement is enforceable.
• The bills must pass the New York State Assembly and receive final approval from New York Governor Kathy Hochul to become law.

Bill No. S3100A

If enacted, Bill No. S3100A would prohibit an employer from entering into a non-compete agreement with an employee, independent contractor, or “any other person who, whether or not employed under a contract of employment, performs work or services” (collectively, “covered individuals”) for the employer. Covered individuals would have a private cause of action against employers that violate the law and, if found liable, employers would be subject to up to $10,000 in liquidated damages for each violation, as well as payment for lost compensation, damages, and attorneys’ fees and costs. The legislation provides for a two-year statute of limitations, triggered by the later occurrence of one of the following events: (i) when the agreement was signed; (ii) when the covered individual learns of the prohibited agreement; (iii) when the employment or contractual relationship is terminated; or (iv) when the employer takes any step to enforce the prohibited agreement. S3100A would become effective thirty days after being signed into law.

Bill No. S6748

Bill No. S6748 is generally aimed at preventing the establishment of monopolies, monopsonies, and restraints of trade.

If enacted, the provisions of S6748 would prevent employers from entering into or maintaining non-competition agreements with workers, including independent contractors, absent a “good faith basis” to believe that a non-compete agreement is enforceable. The bill does not expand upon what constitutes a “good faith basis.” The legislation would also define “non-compete agreement” broadly to include any “de facto” agreement that “has the effect of prohibiting [covered individuals] from seeking or accepting employment[,]” such as overbroad non-disclosure agreements and training-repayment obligations. Employers would also be required to rescind unenforceable non-compete agreements with both current and former workers, and they would be required to provide notice to each worker that an agreement is no longer in effect. If enacted, the law would take effect immediately.

Next Steps

Ogletree Deakins’ New York office and Unfair Competition and Trade Secrets Practice Group will continue to monitor developments and will provide updates on the New York and Unfair Competition and Trade Secrets blogs as additional information becomes available.

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