BILL NUMBER: S4641A
SPONSOR: RYAN S
 
TITLE OF BILL:
An act to amend the labor law, in relation to prohibiting non-compete
agreements and certain restrictive covenants
 
PURPOSE OR GENERAL IDEA OF BILL:
The bill would update New York labor law regarding the permissible use
of non-compete agreements in employment contracts.
 
SUMMARY OF SPECIFIC PROVISIONS:
Section 1: adds a new section 191-d to the labor law.
Subsection 1: Defines "non-compete agreement," "covered employee,"
"highly compensated individual," and health related professional.
Excludes highly compensated individuals (persons making an average of
$500,000 per year) from the definition of "covered individual."
Subsection 2: Provides that no employer or its agent, or the officer or
agent of any corporation, partnership, or limited liability company,
shall seek, require, demand or accept a non-compete agreement from a
covered employee or health related professional. Voids non-compete
agreements entered into after the effective date.
Subsection 3: Provides that an employee, including a covered employee,
may bring a civil action in a court of competent jurisdiction against
any employer or persons alleged to have violated this section.
The employee shall bring such action within two years of the later of:
(i) when the prohibited non-compete agreement was signed; (ii) when the
employee learns of the prohibited non-compete agreement; (iii) when the
employment relationship is terminated; or (iv) when the employer takes
any steps to enforce the non-compete agreement.
Provides the court with jurisdiction to void a non-compete agreement and
to order all appropriate relief.
Liquidated damages shall be calculated as an amount not more than ten
thousand dollars per covered individual or health related professional.
The court shall award liquidated damages to every affected employee in
addition to other permitted remedies.
Subsection 4: Provides that this bill does not affect any other
provision of law affecting the ability of the employer to enter into an
employment contract or other written agreement that protects specif-
ically enumerated legitimate business interests with a prospective or
current employee.
Subsection 5: Creates a carve out for broadcast employees, such that
their existing non-compete protections will govern.
Subsection 6: Provides an exception for business owners (partners,
members of an LLC, or other individuals or entities owning at least 15%
interest in such business) in the context of the sale of a business.
Subsection 7: Specifies that any non-compete that is permissible pursu-
ant to this section must adhere to common law standards of enforceabili-
ty.
Subsection 8: Specifies that this section applies to anyone who lives or
works in New York State, including remote workers reporting to a New
York based worksite or supervisor.
Subsection 9: Requires that employers post a notice regarding employee
rights and protections under this section.
Section 2: Creates a new section of Labor Law, section 45, directing the
Department of Labor to develop a notice to employees under section
191-d.
Section 3: Severability clause.
Section 4: Effective date.
 
JUSTIFICATION:
As their name implies, non-competes are intended to limit competition,
and employers and workers do not have equal negotiating power when
entering into such agreements. Workers often sign these agreements as
part of a boilerplate onboarding packet along with their employment
contract and HR paperwork. Non-compete agreements have a negative effect
on the labor market and economy of New York State. They prevent workers
from seeking employment at entities that may be a better fit, or from
starting their own businesses, and they enable employers to provide less
competitive benefits and wages because their workforce cannot seek
employment elsewhere.
Even in instances where non-compete agreements are unenforceable, their
inclusion in or addition to an employment contract can have a chilling
effect. Employees do not always have the time or money to go to court to
litigate the enforceability of such agreements, and if they receive a
cease and desist letter from an employer, will operate under the assump-
tion that the legal reasoning in the letter is sound.
Across the United States, governments are recognizing that non-compete
agreements are bad for workers and bad for the economy. Many states have
banned non-competes for all or some workers. California, North Dakota,
Oklahoma, and Minnesota have full bans. Washington, Oregon, Maine, New
Hampshire, Colorado, Virginia, Illinois, and Rhode Island protect work-
ers below a certain income threshold from being bound by non-competes.
This bill would take a similar approach, incorporating a high income
threshold reflective of the variety of income levels across the many
industries here in New York State. This threshold is tailored to capture
executives and upper-management; a class of workers that employers may
have a legitimate interest in restricting.
This bill also takes care to carve healthcare workers out of the thres-
hold-all healthcare workers, regardless of income, would be subject to
the protections of the bill. Many states (including Pennsylvania,
Tennessee, and Kentucky) have recognized that holding healthcare workers
to non-compete agreements disrupts the continuity of care and impacts
everyone in the state.
The Federal Trade Commission (FTC) under President Biden introduced a
regulation to ban non-competes nationwide. FTC officials claimed that
this ban would lead to new business formation growing by 2.7% per year,
and a multi-billion dollar reduction in healthcare costs. This regu-
lation is currently being reviewed by federal courts, and as such, New
York should step in and provide clarity to employees and employers
alike.
 
LEGISLATIVE HISTORY:
2021: S6425/A9591
2023: S3100/A1278 - VETOED
 
FISCAL IMPLICATIONS:
None to the state.
 
EFFECTIVE DATE:
This act shall take effect on the thirtieth day after it shall have
become a law and shall be applicable to contracts entered into or modi-
fied on or after such effective date and shall have no retroactive
effect; provided, however, that section two of this act shall take
effect on the one hundred eightieth day after it shall have become a
law. Effective immediately, the addition, amendment, and/or repeal of
any rule or regulation necessary for the implementation of this act on
its effective date are authorized to be made and completed on or before
such effective date.