New York May Become The Latest State To Ban Noncompete Agreements

New York is yet another state to address the future enforceability (or lack thereof) of noncompete agreements. On June 20, 2023, the New York State Assembly passed Bill 3100A (the “Bill”), which was previously passed by the New York Senate. The Bill now awaits Governor Hochul’s signature.

What Does the Bill Provide?

Overall, the Bill prohibits employers from using noncompete agreements. The Bill defines a noncompete agreement 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.” A “covered individual” is “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 contains certain exceptions, including for agreements that prohibit the disclosure of trade secrets or confidential and proprietary client information and agreements that prohibit the solicitation of clients of the employer, which the covered individual learned about during their employment or engagement. Accordingly, confidentiality and nonsolicitation agreements appear to be safe under the Bill. Notably, the Bill does not contain an exception in the sale of business context, although there is some question regarding whether the law only applies in the employment context and does not apply in a sale of business context.

The Bill indicates that it will not apply to existing noncompete agreements and will only be prospective as it states that it shall take effect on the 30th day after becoming law and “shall be applicable to contracts entered into or modified on or after such effective date.”

What are the Next Steps?

Governor Hochul has thirty days to sign the Bill in which case it will become law.  If signed, the Bill is to be codified in the New York Labor Law, Section 191-D and will become effective thirty days after signing.

Other states that already ban noncompete agreements altogether include California, North Dakota, Oklahoma, and Washington, D.C., which have banned such agreements for many decades. Additionally, states such as Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia and Washington have recently passed laws prohibiting noncompete agreements depending on the compensation level of the employee. Minnesota just became the latest state to ban noncompete agreements, with some exceptions, and is effective to all such agreements entered into in the state on or after July 1, 2023.