New York is one step closer to significantly limiting the use of non-compete agreements with passage of a new bill by the Senate. A non-compete agreement is a tool used by employers to keep employees from quitting by restricting their ability to work for a competitor after they leave their jobs. Many jurisdictions have done away with non-competes by making them unenforceable. The state legislature attempted to ban them in 2023, but Governor Hochul vetoed the bill because she thought it was too broad. This new version, Senate Bill S4641, is designed to address her concerns. If passed by the Assembly and signed by the Governor, the law would prohibit many non-compete agreements.

The bill eliminates the use of non-competes for “covered individuals,” defined as employees who earn less than $500,000 annually and all licensed health related professionals regardless of income. The prohibition would prospectively apply to an individual who worked or resided in New York State for at least thirty days immediately preceding the end of the individual’s employment, and would include individuals located in another state who work remotely but report to a New York based office or supervisor.

In an apparent effort to assuage the Governor’s concerns, the bill would not apply to highly compensated individuals who earn $500,000 or more annually or non-competes related to the sale of a business. However, even where a non-compete is allowed, it could not contain a term restriction of greater than one year, and employees must be paid their salary during the enforcement period of the non-compete.

Notably, non-competes already in existence would still be enforceable. Employers could also continue to use otherwise legally enforceable agreements that have a fixed term of service or require exclusivity during employment; prohibit the disclosure of trade secrets or confidential and proprietary client information; or prohibit solicitation of the employer’s clients. The bill is silent on agreements not to solicit employees, which can be interpreted to mean that such agreements are not banned.

If enacted, employers would be required to conspicuously post a notice informing employees of their rights and protections under the new law.

Having passed the Senate, the bill is now being considered by the Assembly Labor Committee. If it is approved in committee, the full Assembly would then vote on it. If adopted by the Assembly, it would then end up on Governor Hochul’s desk. Hopefully, the new version, with its exemption for high earning individuals and business sales, will be acceptable and become law.

This bill attempts to level the playing field between employees and employers. Currently, employers have much of the negotiating leverage in requiring non-competes as a condition of employment. Many employees, hoping for the best, sign them with the expectation of remaining in their new job for the long term. However, if it does not work out that way, these employees often find themselves unemployable in their chosen field for a year or longer. In these competitive times, this is a real hindrance to their careers and ability to support themselves. By enacting this into law, these issues will no longer be a concern.

Please contact one of our business attorneys if you need assistance in negotiating an employment agreement containing a non-compete provision.