Update: Governor Hochul vetoed this bill on December 23, 2023. 

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Non-compete agreements may soon be unlawful in New York. The New York State Assembly passed A1278B on June 20, and the New York State Senate previously passed its counterpart bill, Senate Bill 3100A, earlier this month. If signed by the governor, the bill would amend the New York Labor Law to make unlawful any non-compete agreement signed or modified after the bill’s effective date.

The bill would also grant employees and contractors the ability to sue their employer in court within two years of (i) the date the prohibited non-compete was signed; (ii) the date the employee or contractor learns of the prohibited non-compete agreement; (iii) the date employment or the contractual relationship is terminated; or (iv) the date the employer takes any step to enforce a non-compete agreement. 

Under the bill’s proposed terms, a court may void the non-compete and award the employee or contractor lost compensation, damages, attorney’s fees and costs, and liquidated damages up to $10,000. Given that the bill would render non-compete agreements unenforceable, it is not yet clear what damages a plaintiff may claim under this provision.

The bill would except from its coverage certain other types of restrictive covenants, so long as the agreements do not “otherwise restrict competition” in violation of the proposed law. The excepted covenants are:

• non-disclosure agreements protecting trade secrets and confidential information; and
• agreements prohibiting the solicitation of clients of the employer that the covered individual learned about during their employment.

The bill makes no mention of employee non-solicitation agreements. But importantly, the bill expressly states that it does not affect “any other provision of federal, state, or local law, rule, or regulation” concerning these agreements’ enforceability. That means that the existing reasonableness test under New York common law would still apply to restrictive covenants excepted from this bill’s coverage. While this test rarely limits the scope of non-disclosure provisions, it is often used by courts to limit the scope of client non-solicitation provisions (e.g., by limiting the restriction to clients with whom the covered individual personally interacted during a certain lookback period).

There are a few important distinctions between this pending bill and the proposed ban on non-competes published by the Federal Trade Commission (FTC) earlier this year:

• this bill has no sale-of-business exception;
• this bill would not require the rescission of existing non-competes; and
• this bill would not require employers to provide covered individuals with notice that their non-compete agreements have been voided.

Littler will continue to monitor the status of this pending legislation.