6 July 20232 minute read

Post-employment non-competes may soon be prohibited in New York | New York Law Journal

Properly tailored non-compete agreements, in which employers limit employees or other service providers from becoming employed or engaged by a competing business for a proscribed, reasonable period of time and in a particular geographic territory, have long been recognized by courts and state legislatures across the US as a reasonable means to protect a business’s legitimate interests in confidential information and trade secrets, customer goodwill, and an employee’s unique services (with a notable outlier being California, which for years has prohibited non-competes with limited exceptions, such as the sale of a business).

Within recent years, however, there has been a growing trend at the federal and state level to either limit or ban entirely non-competes in the employer-employee context.  In the past year alone, the Federal Trade Commission has proposed a nationwide ban on non-compete agreements, the General Counsel of the National Labor Relations Board issued a memorandum declaring that most non-compete agreements violate federal labor law, and several states have joined the ranks of California in enacting laws that bar or significantly limit the use of non-competes.

New York appears poised to become the next state to outlaw non-competes.  In late June 2023, the New York legislature passed a bill that, as presently drafted, would ban all non-competes in the employer-employee context, regardless of an employee's salary, industry or job function, and create a private right of action for employees to sue employers that seek to impose or enforce a non-compete.  The bill, which would take effect 30 days after it is signed and approved by Governor Kathy Hochul, would apply prospectively to non-competes entered into or modified on or after its effective date.

Originally published in the New York Law Journal, our alert reviews the bill’s language and identifies a number of serious questions that remain unanswered, such as whether non-compete agreements may still be enforceable in the context of a sale of a business and whether restrictions on solicitation of employees, garden leave, and compensation forfeiture provisions (under the longstanding “employee choice doctrine”) remain permissible in New York.

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