New York Non-competes may soon be prohibited

At a glance

• Reviewing the bill to ban non-competes in New York.

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Properly tailored non-compete agreements, in which employers limit employees or other service providers from becoming employed or engaged by a competing business for a proscribed, reasonable period of time and in a particular geographic territory, have long been recognised by courts and state legislatures across the US as a reasonable means to protect a business’s legitimate interests in confidential information and trade secrets, customer goodwill, and an employee’s unique services (with a notable outlier being California, which for years has prohibited non-competes with limited exceptions, such as the sale of a business).

Within recent years, however, there has been a growing trend at the federal and state level to either limit or ban entirely non-competes in the employer-employee context. In the past year alone, the Federal Trade Commission has proposed a nationwide ban on non-compete agreements, the General Counsel of the National Labour Relations Board issued a memorandum declaring that most non-compete agreements violate federal labour law, and several states have joined the ranks of California in enacting laws that bar or significantly limit the use of non-competes.

New York appears poised to become the next state to outlaw non-competes. In late June 2023, the New York legislature passed a bill that, as presently drafted, would ban all non-competes in the employer-employee context, regardless of an employee's salary, industry or job function, and create a private right of action for employees to sue employers that seek to impose or enforce a non-compete. The bill, which would take effect 30 days after it is signed and approved by Governor Kathy Hochul, would apply prospectively to non-competes entered into or modified on or after its effective date.

Originally published in the New York Law Journal, our alert reviews the bill’s language and identifies a number of serious questions that remain unanswered, such as whether non-compete agreements may still be enforceable in the context of a sale of a business and whether restrictions on solicitation of employees, garden leave, and compensation forfeiture provisions (under the longstanding “employee choice doctrine”) remain permissible in New York.

To access the publication, please click here.