New York State Legislature Passes Bill Banning Non-Compete Agreements and Other Employment Legislation

New York’s Legislature concluded its legislative session with a flurry of activity, including the passage of four notable employment-related bills. In sum, these four bills (i) ban the use of non-compete agreements, (ii) prohibit certain mandatory meetings and communications between employers and their employees, (iii) revise the requirements needed to enter into enforceable nondisclosure agreements resolving claims of discrimination, and (iv) require hiring parties and freelancers/contractors to enter into written agreements for services provided in excess of $800. These bills will become law if they are signed by New York Gov. Kathy Hochul. 

Prohibition of Non-Compete Agreements (S3100A)

The New York Legislature passed a bill prohibiting the use of non-compete agreements and authorizing complainants to bring a civil action against any employer alleged to have violated such prohibition. The bill, if enacted, is a massive overhaul to the current state of New York’s common law and practices concerning the enforceability of non-compete agreements.

The bill would add a new section to the New York Labor Law that bans the use of a “non-compete agreement” between an employer and any “covered individual.” The bill defines a “non-compete agreement” 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 bill defines a “covered individual” as “any other person who … 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 also explicitly states that every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void. The bill clarifies that an employer may enter into and enforce an agreement with a prospective or current employee for a fixed term of service that (1) prohibits the disclosure of trade secrets and confidential and proprietary information or (2) prohibits the solicitation of clients of the employer that the covered individual learned about during employment with the employer, in each case provided the agreement does not otherwise restrict competition in violation of the bill. If the bill becomes law, its terms will only apply to contracts entered into or modified on or after the effective date. 

Finally, the bill provides that a covered individual may bring a civil action against an employer alleged to have violated the law within two years of the latest of when (i) the prohibited non-compete agreement was signed, (ii) the covered individual learns of the prohibited non-compete agreement, (iii) the employment or contractual relationship is terminated, or (iv) the employer takes any step to enforce the non-compete agreement. For a violation of the bill, a court may void the non-compete agreement; order the payment of liquidated damages of no more than $10,000; award any lost compensation, damages, reasonable attorneys’ fees and costs; and award any other relief the court deems appropriate.

The proposed law will take effect 30 days after it is signed by the governor.

Consistent with this bill and trends throughout the country, the state Senate also passed a separate bill (S6748) amending the General Business Law in relation to actions or practices that establish or maintain a monopoly, monopsony or restraint of trade. The bill makes it an unfair method of competition for an employer to enter into, attempt to enter into, or maintain a non-compete clause with a worker; or for an employer to represent to a worker that the worker is subject to a non-compete clause where the worker has no good faith basis to believe the worker is subject to an enforceable non-compete clause. In addition, any employer that has already entered into a non-compete caluse with a worker must rescind it before compliance with the law is required and provide written individualized notice to the worker rescinding the non-compete clause and stating it is no longer in effect. On June 7, 2023, the Assembly referred the bill to the economic development committee.

Prohibiting Mandatory Meetings and Communications Concerning an Employer’s Political or Religious Views (S4982)

The Legislature passed a bill broadening the scope of Section 201-d of the New York Labor Law to prohibit employers from discriminating against employees for their refusal to attend employer-sponsored meetings with the employer or its representatives, or listen to a speech or view communications, where the primary purpose is to communicate the employer’s opinion concerning political or religious matters. Currently, Section 201-d protects employees from discrimination or retaliation by employers for affirmative participation in certain activities, such as an employee’s recreational activities, cannabis use outside of working hours and not on the employer’s premises, and membership in a union. Notably, the new protections do not apply to an employer’s “managerial or supervisory employees.”

The amendments define “political matters” as “matters relating to elections for political office, political parties, legislation, regulation and the decision to join or support any political party or political, civic, community, fraternal or labor organization” and define “religious matters” as “matters relating to religious affiliation and practice and the decision to join or support any religious organization or association.”

Employers are required to post a sign or notice in the workplace informing employees of their rights pursuant to this section. 

The bill takes effect immediately upon the governor’s signing.

Prohibiting Employers From Requiring Nondisclosure Provisions in Settling Claims of Discrimination (S4516)

The Legislature passed a bill amending Section 5-336 of the New York General Obligations Law (the subject of a prior alert), which prohibits employers from requiring a nondisclosure provision in any settlement agreement resolving claims of discrimination, unless the condition of confidentiality is the complainant’s preference. Employers should be especially attentive to this section of the proposed law, since it prohibits some common provisions contained in many separation agreements. 

The amendments modify the law as follows:

• Broaden the scope of the law to apply to independent contractors, whereas the current version of the law applies only to employees and potential employees.
  
  
• Permit an employee or contractor to review and execute an agreement memorializing a complainant’s preference to maintain confidentiality within a 21-day period after the complainant’s receipt of the agreement and revoke their acceptance within seven days of signing. The law currently requires that an employee wait the full 21-day period before executing an agreement and gives an employee seven days after the full 21-day period has elapsed to revoke their acceptance.
  
  
• Render a release of discrimination claims unenforceable if the settlement agreement resolving the claims includes any of the following provisions:
  
  
  • Requiring that a complainant pay liquidated damages for violations of a nondisclosure or non-disparagement clause
  • Requiring that a complainant forfeit all or part of the consideration in the agreement for violation of a nondisclosure or non-disparagement clause
    
    
  • An affirmative statement by the complainant that the complainant was not subject to any unlawful discrimination

The law, as amended, will take effect immediately upon the governor’s signature and will apply to agreements entered into on or after such date.

New York State’s Freelance Isn’t Free Act (S5026)

The Legislature passed a bill mandating that any hiring party in New York that retains a freelancer’s services for at least $800 provide such freelancer with a detailed written contract and timely and full payment. The bill also includes an anti-retaliation provision for the exercise of rights prescribed therein, provides for a private cause of action when any obligations are not met, and also provides for an administrative process within the state Department of Labor (DOL) for resolving disputes between freelancers and hiring parties. Violations of the law could result in statutory damages, double damages, injunctive relief and attorney’s fees.

The bill explicitly states that it does not override or supplant New York City’s Freelance Isn’t Free Act, which took effect on May 15, 2017, and is the foundation for the state’s bill. The city’s landmark law created labor protections for freelance workers (contractors), such as the right to a written contract, timely and full payment, and protection from retaliation. The state bill replicates the labor rights contained in city law, adding administrative oversight and support from the DOL, while maintaining the city’s local law.

The proposed law, which will be added to New York Labor Law, will take effect 180 days after it is signed by the governor and will apply only to contracts entered into on or after such effective date. Notably, the governor vetoed a similar bill in December 2022 after it passed the state Legislature, citing costs due in part to an increased need for staffing at the DOL. But now, given the overwhelming support of the bill in both houses, a veto likely will be overridden.

Next Steps and Best Practices

Employers should be cognizant of the New York Legislature’s recent activity and prepare for the possible enactment of these employment-related bills by reviewing restrictive covenant agreements, handbooks and policies, settlement and separation agreements, and practices concerning the use of freelancers and independent contractors. Of course, employers need not comply with any of the bills discussed in this alert unless and until Gov. Hochul signs them into law or the Legislature overrides Gov. Hochul’s veto of the bills, if any. Nevertheless, we recommend that employers prepare for the enactment of these bills in the near future.

Kramer Levin will continue to monitor developments in this area. Please contact a member of our team with questions or for assistance navigating New York’s dynamic legal landscape.