In a crucial development, the New York State Assembly passed Assembly Bill A1278 on June 20, 2023 (already passed by the New York Senate), designed to invalidate nearly all new non-compete agreements in employment contracts. This aligns with Governor Hochul's early-2022 proclamation to dismantle non-compete agreements for those earning below the median New York State wage.

Non-competes will be largely banned for "covered individuals," with any contract restraining such individuals from engaging in their profession, trade, or business rendered void. This proposed law will only impact contracts modified or entered into after the law takes effect.

The legislation permits private legal action by the covered individual against the employer within a two-year period and further allows Courts to nullify the non-compete and award relief, including lost compensation, attorneys' fees, and liquidated damages up to $10,000.

Limited exceptions are allowed, such as fixed term of service agreements or prohibitions on disclosing trade secrets, proprietary information, or soliciting clients. However, such agreements must not breach the new law's restrictions.

New York State's move aligns it with California, North Dakota, Oklahoma, Minnesota, and others prohibiting most non-competes, amid a broader national shift. Similarly, the Federal Trade Commission has proposed rules banning virtually all non-competes, including existing ones, and the National Labor Relations Board’s General Counsel has recently expressed that non-competes violate federal law. 

Yet, ambiguities in the New York bill, including its silence on non-competes in business sales, non-solicitation of employees, post-employment forfeiture of certain economic benefits (e.g., stock options) when the covered person enters employment with a competitor, along with lack of any definition of a "fixed term of service," leave open many questions. Additionally, since the bill only applies to restrictions after the conclusion of employment, it does not seem to affect contractual provisions concerning notice periods or “garden leave,” though it does not address those either.

The bill is still awaiting Governor Hochul’s approval. If approved, the bill banning non-compete agreements would become effective 30 days after such approval by the Governor.

Employers may want to consider the following: 

1. Review Agreements: Scrutinize your current employment agreements and restrictive covenants and make any needed modifications before this legislation goes into effect. 

2. Legal Consultation: Engage our employment litigation group to assist in navigating these changes.

3. Alternative Measures: Explore other protective strategies like strengthening confidentiality agreements, implementing reasonable non-solicitation clauses, and even addressing the length of notice periods and garden leave.

We will provide updates concerning any further developments related to this proposed legislation. If you have any questions about how we can assist in planning for this dramatic shift in the restrictive covenant regime in New York or our employment litigation practice, please contact us.