Non-compete agreements have been the subject of a tremendous amount of litigation for many years. In New York, they have always been enforceable, but with specific limitations and restrictions. Now, the New York State Legislature has passed a bill (S3100A) that would ban non-compete agreements in New York State.
Pursuant to the bill, an individual would be authorized to commence a civil lawsuit against an employer they allege has violated the prohibition against non-compete agreements. This would be a sweeping change to New York State law, which currently permits non-compete agreements. A new section would be added to the New York Labor Law that bans the use of a non-compete agreement between an employer and any “covered individual.”
In the bill, a “non-compete agreement” is defined as “any agreement, or clause contained in any agreement, between an employer and a covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” A “covered individual” is defined as “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, an under no obligation to perform duties for, that other person.”
The bill prohibits employers from seeking, requiring, demanding or accepting a non-compete agreement from any covered individual and that every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void. It further provides that “[t]he court shall have jurisdiction to void any such non-compete agreement and to order all appropriate relief, including enjoining the conduct of any person or employer; ordering payment of liquidated damages; and awarding lost compensation, damages, reasonable attorneys’ fees and costs.” Liquidated damages are capped at $10,000.00.
The bill specifically states that nothing in the new section shall be construed or interpreted as affecting any other….regulation relating to the ability of an employer to enter into an agreement with a prospective or current covered individual that establishes a fixed term of service or prohibits disclosure of trade secrets, disclosure of confidential and proprietary client information, or solicitation of clients of the employer that the covered individual learned about during employment, provided that such agreement does not otherwise restrict competition in violation of this section.
The proposed amendment would take effect 30 days after it is signed by the governor.
The Legislature also passed a bill that would prohibit employers from requiring a non-disclosure provision in any settlement agreement that resolves claims of discrimination, unless confidentiality is “the claimant’s preference.” (S4516). This new section that would be added to New York’s General Obligations Law Section 5-336 expands the scope of the law to include independent contractors. It also would permit an employee or contractor to review and execute such an agreement within 21 days after receipt and revoke their acceptance within 7 days of signing. The current law requires that an employee wait 21 days before signing the agreement and provides an additional 7 days to revoke their acceptance.
The bill further provides that a release of discrimination claims would be unenforceable under the following circumstances:
- If a complainant is required to pay liquidated damages for violation of a non-disclosure clause or non-disparagement clause;
- If the complainant is required to forfeit all or part of the consideration for the agreement, for violation of a non-disclosure or non-disparagement clause; or
- If it contains or requires any affirmative statement, assertion, or disclaimer by the complainant that the complainant was not in fact subject to unlawful discrimination, including discriminatory harassment, or retaliation.
The proposed amendment would take effect immediately upon the governor’s signature.
If the amendments are signed into law by the governor, it will be important for employers to review the current employment agreements, or any other restrictive covenants, to make sure they are in compliance with the new laws. As always, it’s important to stay up to date on the ever-changing landscape of restrictive covenants and their enforceability.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.
