New York’s Proposed Employment Contract Reforms: What Employers Need to Know

Quick Hits

• S4424/A5411 would invalidate any contractual provision waiving or otherwise limiting any employee’s substantive or procedural rights, remedies, or claims.
• A636/S4996 would define certain terms in standard form contracts as unconscionable, effectively rendering them illegal and unenforceable.

Waiver of Employment Rights

Senate Bill No. 4424, introduced on February 4, 2025 (and the identical Assembly Bill No. 5411, introduced on February 13, 2025), would amend the New York Labor Law and the New York State Human Rights Law to add new Sections 219-e and 302, respectively. Under these sections, contractual provisions waiving or limiting “any employee’s substantive or procedural rights, remedies, or claim” would be invalid.

Significant exceptions to this general rule would exist for waivers mutually agreed to and included in “the settlement of any good faith bona fide dispute in which an employee raises a claim against their employer” or “an agreement entered upon or following the termination of an employee’s employment.”

The bill clarifies that the “provisions of this subdivision shall not apply where application of such provisions would be preempted by federal law.”

Unconscionable Contract Terms

Assembly Bill No. 636, introduced on January 8, 2025, would amend the New York General Business Law (GBL) to add a new section 349-h which would invalidate the inclusion of unconscionable terms in standard form contracts regarding dispute resolution. An identical bill, Senate Bill No. 4996, was introduced on February 14, 2025.

The bill defines a “standard form contract” as “any contract to which only one of the parties is an individual and that individual does not draft the contract.” According to the sponsor’s memo for the bill, the proposed amendment to the GBL is intended to apply to employment-related agreements.

The bill outlines a rebuttable presumption that the following contractual terms are substantively unconscionable when included in a standard form contract:

• a requirement to resolve legal claims in an inconvenient venue, which is defined as “a place other than the county where the individual resides or the contract was consummated” for state claims and “a place other than the federal judicial district where the individual resides or the contract was consummated” for federal claims;
• a waiver of the right to assert claims or seek remedies under state or federal law;
• a waiver to seek punitive damages;
• a requirement to bring an action prior to the expiration of the applicable statute of limitations; and
• a requirement to pay fees and costs to bring a legal claim substantially in excess of the fees and costs to initiate a federal or state court action.

In addition to the terms outlined above, the bill provides that standard form contracts must advise an individual to consult with an attorney of his or her choosing concerning the contract and provide a reasonable time in which to review the contract with such attorney.

According to the bill, the inclusion of an unconscionable contractual term in a standard form contract is an unfair and deceptive practice, which may be prosecuted by the Office of the New York State Attorney General. The bill also provides for a private right of action and statutory damages of $1,000 per violation.

One critical aspect of the bill is its failure to provide a criterion for courts to determine when unconscionable terms are permissible or severable from a standard form contract, although the sponsor’s memo suggests an intent that the bill “create[] a presumption that such terms are not severable from the contract.” Additionally, the bill does not specify how much time an individual must have to consult with an attorney.

Insights for Employers

While it is too early to tell if these bills will become law, their introduction shows that there is still interest in the New York State Legislature in further restricting the scope of permissible terms under employment-related agreements.

As these bills progress during this year’s legislative session, employers may wish to consider reviewing their New York employment contract agreements to ensure compliance with these bills and to confirm the enforceability of those agreements, if the bills are enacted.

Ogletree Deakins’ New York and Buffalo offices will continue to monitor developments and provide updates on the Employment Law and New York blogs as additional information becomes available.

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