CLS Blue Sky Blog

Cleary Gottlieb Discusses New York Bill Banning All Non-Competes

Earlier this week, the New York State legislature passed a bill banning all non-competes entered into on or after 30 days past the bill’s enactment, including those entered into by employees or in connection with the sale of a business.  If the bill becomes law, it would make New York the fifth state in the U.S. to enact a ban on non-competes.  California, Minnesota, North Dakota, and Oklahoma have also enacted bans on non-competes, but theirs do not go as far as New York’s full ban, instead banning only employee non-competes, but preserving those that are entered into in connection with the sale of a business.

The bill now must be transmitted to Governor Kathy Hochul at any time before year end.  Once transmitted, Governor Hochul would then have 30 days to sign the bill, or it would be vetoed automatically if not signed by the end of that period.

The New York bill bans employers (regardless of form) from seeking or requiring a “covered individual” to enter into an agreement that prohibits or restricts the covered individual from obtaining employment following the individual’s termination of service with the employer.  A “covered individual” is any 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.  This definition would appear to apply to partners and other service providers who are not in a traditional employment relationship, but the bill’s reference to the service provider being in a position of “economic dependence” on the employer would suggest that independent contractors are excluded from its reach.

The bill also provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  This provision seems to give New York courts the authority to address those contracts that are entered into after enactment of the law but that may or may not be covered by the above prohibition.

Perhaps most significantly, the bill authorizes affected covered individuals to bring a civil action against any employer or person alleged to have violated the prohibition. These individuals would have two years from the later of when:

The bill provides that if the affected covered individual succeeds in such a civil action, the individual has the right to recover his or her reasonable legal fees, lost compensation, and liquidated damages of up to $10,000, which the court shall award to every affected covered individual.  A court can also award injunctive relief.

The bill excepts:

This post comes to us from Cleary Gottlieb Steen & Hamilton LLP. It is based on the firm’s memorandum, “New York Advances Towards Banning All Non-Competes,” dated June 22, 2023, and available here. 

Exit mobile version