Among the tidal wave of changes impacting employers, ranging from updated anti-harassment laws, restrictions on absenteeism policies and new pay transparency rules, New York is now poised to restrict the use of non-compete agreements. Having cleared both the State Senate and Assembly in June, a sweeping ban on non-compete agreements now awaits only Governor Hochul‘s expected signature to become law. With such action, New York will join several states as well as the Federal Trade Commission (FTC) and the National Labor Relations Board in a growing movement to eliminate all restrictions on post-employment competi- tion.
New York’s pending non-compete prohibition reaches “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 …” “Covered individuals” include essentially any person performing work or services, employees or contractors.
The bill allows continued use of employment contracts for a fixed term, as well as agreements prohibiting the disclosure of trade secrets or proprietary business information. Likewise, agreements prohibiting the solicitation of customers that the covered individual learned about during employment or contract work may still be prohibited in most circumstances.
Surprisingly, the New York bill, unlike many other similar state and federal restrictions, does not set forth a “sale of business” exception. This means that, as it stands today, when the law becomes effective, business owners will not be able to prohibit the seller of a business from competing against the very business it was sold to immediately after a sale. Fortunately, the bill as written is not retroactive. It becomes effective 30 days after signed into law.
But beware, there is more on the horizon. The State Senate has passed another bill mirroring a proposed FTC rule which explicitly invalidates all existing non-competition agreements. Employers are urged to take a proactive approach to this issue. It is more important than ever to focus on thoughtful and effective agreements which protect intellectual property and a broad range of proprietary business information. Properly crafted non-solicitation agreements are also effective options.
Clients and friends desiring more information on this topic are encouraged to contact the Firm.