In January, the Federal Trade Commission proposed eradicating most non-competition agreements. Last month, while the National Labor Relations Board doubled down on efforts to eliminate these restrictive covenants, the State of Minnesota voted to eliminate them starting in July.
Now New York is poised to become the fifth state to ban noncompetes.
Earlier this month, the New York Senate approved this bill, which will prohibit noncompete agreements and certain restrictive covenants while authorizing covered aggrieved individuals to bring a civil action.
Expressly, the legislation would prohibit agreements between businesses and covered individuals (employees, independent contractors, or “any other person who, whether or not employed under a contract of employment, performs work or services”) that prohibit or restrict them from obtaining employment after their job ends. However, the law does specifically carve out agreements that forbid the solicitation of clients and protect trade secrets and other confidential information.
The penalties for violating the law are steep: lost wages, reasonable attorneys’ fees and costs, liquidated damages of up to $10K, and other “damages.” Victims would have two years to sue.
The new law would take effect 30 days after passage and only apply prospectively.
There’s an alternative measure pending.
This bill, which the NY Senate also approved earlier in the month, would make it unlawful for employers to “enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.”
Let’s break this down a bit:
- A “non-compete” clause isn’t just a traditional non-competition agreement but also a “de facto non-compete clause” that has the effect of a non-competition agreement. One example is an overly broad nondisclosure agreement. Another is a contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker’s employment terminates within a specified period, where the required payment is not reasonably related to the costs the employer incurred for training the worker.
- A “worker” means any individual, whether paid or unpaid, and could be an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor.
- A “good faith basis” is undefined.
Unlike the other proposed legislation, this one would apply retroactively and force an employer that entered into a non-compete clause with a worker before the compliance date to rescind it by the compliance date.
NY Governor Kathy Hochul is no fan of non-competes. Their days in NY are as limited as the Knicks’ chances of winning another NBA title.