New York to Decide on Signing Noncompetition Ban into Law

New York business owners and employees alike await a decision from Governor Kathy Hochul as to proposed legislation, which has passed in both the New York State Senate and General Assembly, that would ban most noncompetition covenants in the state.

The proposed legislation provides that no “employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity shall  seek, require, demand or accept a noncompete agreement from any covered individual”, which the bill defines as 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.” The bill further states that every agreement “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The bill also creates a civil cause of action for covered individuals to file suit against employers that violate the pending prohibitions.

As written, the bill has broad applicability and impacts to nearly all employer-employee and independent contractor relationships, without regard to the existence of a written agreement, the amount of compensation the individual receives, or whether the individual bargained at arm’s length in agreeing to the restrictive covenant.

Proponents of the legislation view the proposal as protective to low-wage earners. Specifically, Governor Hochul views low-wage earners as needing safeguarding from predatory practices that limit employee mobility. Pro-business lobbying groups are decidedly against the legislation as proposed, citing competitive factors and the concerns that businesses may relocate to less hostile jurisdictions that preserve the integrity of noncompetition agreements. Yet, certain business groups feel that enacting a compensation cap as to applicability would appease both support and opposition groups. The Wall Street Journal (WSJ) reports that the “Business Council of New York State, a lobbying group, has pushed forward amendments to the bill that would allow employers to keep noncompete clauses for employees who are compensated $200,000 or more.” In addition, another point of contention is whether the Bills will ultimately impact existing noncompetition covenants. The WSJ cited New York State Senator Sean Ryan’s position that, if the Bills become subject to negotiation, he would consider “adding language to nullify pre-existing noncompete agreements — something pro-business groups had thus far successfully lobbied to keep out of the legislation.”

The WSJ further indicated that Governor Hochul would “like to see a compensation cap for such a ban, floating $250,000 as a level above which noncompetes would be allowed.” The Governor indicated that she intended to close out much proposed legislation before the end of 2023, but the decision timeline for this bill could extend into 2024.