The New York State Senate just voted to pass a bill that would ban all noncompetes in New York.
The debate was quite short and, unfortunately, replete with fundamental mistakes, confusion, and overstatements about how noncompetes work. Apparently, the Senate was not moved by my post, Please Stop Using California as the Poster Child to Ban Noncompetes – Time for an Honest Policy Discussion.
The New York Assembly was also scheduled to consider it today. If it passes the Assembly today (or by the end of the week before the session ends) and is signed by the Governor (which is expected), New York will be the fifth state, following on the heels of Minnesota, with a noncompete ban.
The bill bans noncompetes for some vague category of workers:
The language of the bill that bans noncompetes provides a follows:
No employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity, shall seek, require, demand or accept a non-compete agreement from any covered individual.
The bill defines a “covered individual” as follows:
“Covered individual” means 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.
The bill may ban more than just noncompetes.
In addition to the language above, the bill adopts language similar to other states with a ban (based on the Field Code). The language provides:
Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Although the bill then repeats the language, “For all covered individuals, no employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity shall seek, require, demand or accept a non-compete agreement from any covered individual,” that repetition does not purport to limit the scope of the Field Code language.
If New York courts interpret that like California courts, it will be broader than noncompetes. If they interpret it like North Dakota and Oklahoma, it will not be broader. For now, we don’t know how broadly it will be interpreted (if it becomes law) – though the language (discussed below) authorizing the filing of a civil action seems to suggest that the Legislature anticipates a narrow interpretation.
Sale of business exception?
The definition of covered person is not the picture of clarity. It will make for lots of arguments about whether noncompetes in the context the sale of a business are prohibited or not. (I think the better argument is that they would not be banned.
The bill will operate prospectively.
If passed, the bill will take effect 30 days later and will only apply prospectively. (Correction: I had previously misread it as thirteenth.)
Violations can result in liquidated damages and attorneys’ fees.
The bill authorizes a covered individual to “bring a civil action in a court of competent jurisdiction against any employer or persons alleged to have violated this section.” Interestingly, the bill can be read to authorize an individual to sue any company that is violating the statute, though that is presumably not the intent.
If the employee is successful, the court can “void any such non-compete agreement and . . . 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.”
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Stay tuned, we’ll keep you posted.
*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country.
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Resources to help
Because we know how hard it is to keep up with the ever-changing requirements around the country, we have created the following resources (available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
We also have a 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).