June 22, 2023
Stroock Client Alert
By: Howard S. Lavin, Elizabeth E. DiMichele
On June 20, 2023, the New York State Legislature passed an amendment to the New York State Labor Law—new Section 191-d (“Labor Law §191-d” or the “Amendment”)—which would bar employers from seeking, requiring, demanding or accepting a “non-compete agreement” from “covered individuals.” If signed into law by Governor Kathy Hochul, Labor Law §191-d would take effect 30 days thereafter and would be applicable to contracts entered into or modified on or after the effective date. Upon passage, New York would join California, North Dakota, Minnesota, Oklahoma, and the District of Columbia in broadly banning all non-compete agreements. Several other states, including Colorado, Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia, and Washington significantly limit the enforceability of post-employment non-compete agreements, particularly with employees who earn less than a specified amount.
Under Labor Law §191-d, a "non-compete agreement" is defined as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” The Amendment permits agreements prohibiting the disclosure of trade secrets, confidential and proprietary client information, and solicitation of the employer’s clients that the covered individual learned about during employment, provided that such agreement does not otherwise restrict competition in violation of Labor Law §191-d. Importantly, the Amendment does not address post-employment restrictive covenants prohibiting the solicitation of employees or service providers, nor expressly permit an exception in connection with the sale of a business.
The term “covered individual” is defined broadly and certainly appears intended to include employees and independent contractors: “any other 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.”
Labor Law §191-d creates a private right of a covered individual to bring a lawsuit against any employer or persons alleged to have violated the Amendment within two years of the later of: (i) when the prohibited non-compete agreement was signed; (ii) when the covered individual learns of the prohibited non-compete agreement; (iii) when the employment or contractual relationship is terminated; or (iv) when the employer takes any step to enforce the non-compete agreement. Potential remedies include voiding any such non-compete agreement and all appropriate relief, including payment of liquidated damages and lost compensation, damages, reasonable attorneys' fees and costs. Liquidated damages are to be calculated in an amount not more than ten thousand dollars ($10,000).
Takeaway
Non-compete agreements have long been the subject of scrutiny by courts and federal and state agencies. In January 2023, the Federal Trade Commission (“FTC”) proposed a rule that would ban post-employment non-compete agreements, with limited exceptions related to a person selling at least a 25% interest in a business. And on May 30, 2023, the General Counsel of the National Labor Relations Board issued a memorandum in which she expressed her opinion that “[e]xcept in limited circumstances . . . the proffer, maintenance, and enforcement of [non-compete agreements] violate Section 8(a)(1) of the [National Labor Relations] Act.”
The passage of the Amendment is yet another reminder to employers that use or are contemplating the use of non-competes to give careful consideration to the particular interests they are seeking to protect and whether a less restrictive client non-solicitation and/or confidentiality agreement would serve the employer’s interests just as well.
June 22, 2023
Stroock Client Alert
By: Howard S. Lavin, Elizabeth E. DiMichele
On June 20, 2023, the New York State Legislature passed an amendment to the New York State Labor Law—new Section 191-d (“Labor Law §191-d” or the “Amendment”)—which would bar employers from seeking, requiring, demanding or accepting a “non-compete agreement” from “covered individuals.” If signed into law by Governor Kathy Hochul, Labor Law §191-d would take effect 30 days thereafter and would be applicable to contracts entered into or modified on or after the effective date. Upon passage, New York would join California, North Dakota, Minnesota, Oklahoma, and the District of Columbia in broadly banning all non-compete agreements. Several other states, including Colorado, Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia, and Washington significantly limit the enforceability of post-employment non-compete agreements, particularly with employees who earn less than a specified amount.
Under Labor Law §191-d, a "non-compete agreement" is defined as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” The Amendment permits agreements prohibiting the disclosure of trade secrets, confidential and proprietary client information, and solicitation of the employer’s clients that the covered individual learned about during employment, provided that such agreement does not otherwise restrict competition in violation of Labor Law §191-d. Importantly, the Amendment does not address post-employment restrictive covenants prohibiting the solicitation of employees or service providers, nor expressly permit an exception in connection with the sale of a business.
The term “covered individual” is defined broadly and certainly appears intended to include employees and independent contractors: “any other 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.”
Labor Law §191-d creates a private right of a covered individual to bring a lawsuit against any employer or persons alleged to have violated the Amendment within two years of the later of: (i) when the prohibited non-compete agreement was signed; (ii) when the covered individual learns of the prohibited non-compete agreement; (iii) when the employment or contractual relationship is terminated; or (iv) when the employer takes any step to enforce the non-compete agreement. Potential remedies include voiding any such non-compete agreement and all appropriate relief, including payment of liquidated damages and lost compensation, damages, reasonable attorneys' fees and costs. Liquidated damages are to be calculated in an amount not more than ten thousand dollars ($10,000).
Takeaway
Non-compete agreements have long been the subject of scrutiny by courts and federal and state agencies. In January 2023, the Federal Trade Commission (“FTC”) proposed a rule that would ban post-employment non-compete agreements, with limited exceptions related to a person selling at least a 25% interest in a business. And on May 30, 2023, the General Counsel of the National Labor Relations Board issued a memorandum in which she expressed her opinion that “[e]xcept in limited circumstances . . . the proffer, maintenance, and enforcement of [non-compete agreements] violate Section 8(a)(1) of the [National Labor Relations] Act.”
The passage of the Amendment is yet another reminder to employers that use or are contemplating the use of non-competes to give careful consideration to the particular interests they are seeking to protect and whether a less restrictive client non-solicitation and/or confidentiality agreement would serve the employer’s interests just as well.
