The legal world was rocked in January of this year when the Federal Trade Commission announced that it was weighing a rule that would ban all non-compete agreements in the United States.
During the ensuing months, many state legislatures, including New York’s, began considering state-based measures to ban non-compete agreements.
The New York legislature recently passed a bill that, if signed by Gov. Hochul, would have far-reaching impacts on the state’s labor and employment laws. The Governor is expected to sign the bill.
Why are non-compete clauses being banned?
Non-compete agreements have long been used by employers to prevent their employees from accepting a job with a competitor if they leave their current job for any reason.
Employers have long argued that non-competes are necessary to preserve confidential information and prevent competitors from gaining an unfair advantage by hiring critical employees and then asking them to disclose confidential information about their former employer.
In February 2023, the United States Federal Trade Commission announced that it was going to consider a regulation that would ban non-compete clauses throughout the United States.
The FTC stated that non-compete clauses restricted competition and imposed an unfair burden on employees who wanted to change jobs and perhaps find a position with greater pay and more responsibility.
The FTC also noted that non-competes limit the ability of start-up companies to recruit competent staff. Following the FTC’s announcement, many state legislatures rushed to enact similar bills in their own states.
The important provisions of the New York legislation
The New York bill that is headed to Gov. Hochul’s desk essentially prevents all employers from using non-compete agreements with existing or potential employees. The bill becomes effective 30 days after being signed by the Governor.
The bill prevents an employer from entering into a non-compete with an employee, independent contractor, and any other person who performs work or services for the employer.
If found liable of violating the statutory ban, an employer may be charged with liquidated damages of up to $10,000 for each violation, together with reimbursement for lost income, attorneys’ fees and costs.
The bill in its current form does not affect the use of non-disclosure and non-solicitation agreements.