Loyola University Chicago School of Law, JD 2025
There is an ever-growing wave of states banning non-compete agreements (“non-competes”), and New York is likely to join this trend. The New York Legislature just passed one of the broadest non-compete bans in the history of the United States in early June this year, and Governor Kathy Hochul is likely to sign this ban into effect. This broad non-compete ban comes in the form of two bills, both passed by the New York Senate. One bill would ban post-employment non-competes, and the other would prohibit employers from having employees enter into a non-compete, absent a “good faith basis”. If signed by Governor Hochul, these bills will become effective 30 days after signing. These bills will be prospective, meaning they will not invalidate preexisting non-competes signed on or before July 1st, 2023.
What the non-compete ban covers:
These bills ban non-competes for all employees, regardless of their salary or job function However, there are exceptions to the types of non-competes that are banned. Three exceptions to the banned non-competes are:
- Agreements with a current individual that establishes a fixed term of service;
- Agreements prohibiting disclosure of trade secrets or confidential client information, and;
- Agreements prohibiting solicitation of clients of that employer that the employee learned about during employment.
The bill is silent on non-competes between a buyer and a seller, and focuses mostly on non-competes dealing with relationships between employers and employees.
New York banning non-competes is part of a much larger nationwide trend. Other states have passed complete non-compete bans including Minnesota, Oklahoma, California and North Dakota, with others passing partial bans, such as Illinois, Oregon and Colorado. These bills mirror the recent Federal Trade Commission (FTC) bill banning non-competes on a national basis, which is set to be voted on in 2024.
FTC banning non-competes
New York banning non-competes is a direct reaction to the FTC proposed nationwide non-compete ban. The FTC estimates that the nationwide ban could increase employees’ wages by almost $300 billion per year, and improve career opportunities for almost 30 million Americans. This proposed rule is a result from a finding that non-competes likely violate Section 5 of the Federal Trade Commission Act, which bans unfair methods of competition. The proposed nationwide ban was announced in early January 2023, and the FTC expects a final rule by April or May 2024. The New York non-compete bills share the broadness of the nationwide FTC proposed rule, however, there are a few key differences between the bills.
The first difference is that the proposed FTC bill does not provide a private right of action. The New York bills allow employees to bring a suit against their employers within two years of signing their non-compete, the termination of their employment, or whenever their employer acts upon the non-compete. Courts are permitted to both void the non-compete provisions, and further provide up to $10,000 in liquidated damages along with other damages such as post compensation and attorney’s fees.
The second difference is that the FTC proposed bill provides an exception to non-compete provisions for “sale of business agreements,” while the New York bills are silent on that topic. This exception is notable, since non-compete agreements are very common in purchase agreements between a buyer and a seller.
The final key difference is that while the New York non-compete bills would be prospective, meaning the ban will only pertain to agreements signed after July 1, 2023, the FTC proposed ban is retroactive, and will ban all existing non-compete agreements and provisions.
Impact of banning non-competes
The New York non-compete bills provide a reasonable cause of action for employees who are subject to these non-competes, and courts can award injunctive relief, compensatory damages, and liquidated damages up to $10k for each violation. Some businesses are not as enthused about the legislation on non-competes, and many employers are worried the new law will make it harder for businesses to retain their more valuable workers. However, businesses generally have more money and resources than individual employees and can afford to have their valuable employees leave the company to expand their own careers and pursue more opportunities. Many companies are expected to be more resistant to having their chief executives being based in New York. However, in many instances, workers are unable to find new jobs as a result of their non-competes, which restrict their application opportunities and prevent them from taking new jobs. New York’s non-compete ban will hopefully bring the United States one step closer to giving employees more opportunities and peace of mind.