Seyfarth Synopsis: The New York State Assembly has joined the State Senate in passing legislation to prohibit non-compete clauses in employment contracts. The bill now heads to the Governor and, if signed into law, would void any agreement containing a prohibited non-compete restraint and subject employers to potential litigation and liquidated damages.

As we recently discussed here and here, New York is close to joining a number of states that prohibit non-compete clauses in employment agreements. A bill to that effect has now passed both chambers of the State legislature and awaits the Governor's signature.

The bill would take effect 30 days after the Governor signs it. The new law would be applicable only to contracts entered into or modified on or after the effective date and would not void existing agreements.

Broad Definitions of Non-Compete Agreements, Covered Individuals

The bill defines "non-compete agreements" 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." It voids "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind." Employers cannot "seek, require, demand or accept a non-compete agreement from any covered individual" as the bill currently reads.

"Covered individuals" are 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, and under an obligation to perform duties for, that other person."

Penalties: Private Right of Action; Liquidated Damages

The bill empowers aggrieved individuals (i.e., employees who are covered by a prohibited non-compete agreement) to pursue a civil action within two years of the latter of (i) when the prohibited non-compete agreement was signed; (ii) when the covered individual learns of the prohibited non-compete agreement; (iii) when the employment or contractual relationship is terminated; or (iv) when the employer takes any step to enforce the non-compete agreement.

Further, the bill enables courts to void non-compete agreements "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.

Status and Next Steps

As of this writing, the bill has been sent to Governor Kathy Hochul for signature. While her approval of the bill is expected, the bill differs somewhat from her previously stated position on this subject: she has promised to eliminate non-compete agreements for workers making below the median wage in New York State, but her public comments have not gone as far as this bill, which would ban all non-compete agreements.

Once the bill goes into effect, employers will need to remove non-compete language in any employment contract and could face litigation as a result of the inclusion of prohibited language.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.