NYS Senate Passes Bill Banning Non-competes; On to NYS Assembly

June 13, 2023

On June 7, 2023, the New York State Senate passed Bill No. SO3100, which, if signed into law, would ban non-compete agreements (“non-competes”) throughout the state, without exception.

The bill defines non-competes broadly as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” A “covered individual” is a person who “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, and under an obligation to perform duties for, that other person.”

Employers would violate the bill if they “seek, require, demand or accept” a non-compete—not just if they try to enforce it. An aggrieved employee would have a private right of action against their employer for a number of remedies, including injunctive relief, lost compensation, damages, liquidated damages of up to $10,000, reasonable attorneys’ fees and costs and other potential remedies. What’s more, the statute of limitations is a moving target that runs from the later of (i) when a covered individual “learns of” the non-compete, (ii) when the non-compete is signed, (iii) when the employment or contractual relationship is terminated or (iv) when the employer “takes any step to enforce” the non-compete. Significantly, the bill not only prohibits non-competes prospectively, but also appears to invalidate existing non-competes, declaring that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

The bill would not prohibit agreements that “establish[ ] a fixed term of service or prohibit[ ] 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.” Thus, restrictions on the use of confidential information, as well as client non-solicits that are limited to clients the employee “learned about during employment,” would be permitted. The statute is silent on provisions restricting the ability to solicit a prior employer’s employees.

The bill leaves several important questions unanswered, including:

  • Would an individual currently subject to a non-compete sue when the law is passed regardless of whether an employer tries to enforce it given the retroactive invalidation of existing non-competes?
  • Since the bill only purports to prohibit any non-compete that restricts employment “after the conclusion of employment with the employer,” how will that impact non-competes applied to employee-shareholders in the sale-of-business context?
  • What would the fate be of post-employment non-competes that rely on employee choice—i.e., where an employee is free to compete but foregoes certain compensation if they do—if this bill becomes law?
  • How much leeway would employers have under this law to protect their confidential information and clients without “otherwise restrict[ing] competition in violation of” the law?
  • Would post-employment restrictions on soliciting employees be permitted if the bill were signed into law?
  • Because the proposed statute applies in the employment context, it would appear that non-competes would still be valid for members of an LLC or partners in an LP, but it is unclear how broadly it will be construed.

The bill is now with the New York State Assembly. If it passes, Governor Hochul will have ten days to sign it into law. The Governor’s office has not commented publicly on the bill to our knowledge.

If you have any questions, please contact David Baron, Anne Patin, John Ryan or your primary Seward & Kissel attorney.