With the Federal Trade Commission’s Noncompete ban essentially dead, state legislatures, as expected, are taking restrictive covenant lawmaking into their own hands.
We previously reported that in 2023, while the FTC Noncompete ban was pending, New York Governor Kathy Hochul vetoed a bill that sought to ban all noncompetes in the State of New York, stating that a “balance” was needed instead of a strict ban on all noncompetes. On January 9, 2025, the New York State Assembly introduced NY A01361 (the “Bill”) to the Assembly Labor Committee that, if passed, would allow “employers to request or require a prospective or current employee to execute a restrictive covenant not to engage in specified acts in competition with the employer after termination of the employment relationship as a condition of employment, continued employment, or with respect to severance pay,” but only subject to certain requirements (discussed below).
The Bill would amend New York Labor Law to add Section 191-d: “Restrictive covenants.” Under this section, an Employee is defined as “any person employed for hire by an employer in any employment,” including “in a supervisory, managerial, or confidential position.” An Employer includes “any person, corporation, limited liability company, or association” as well as “the state[,] . . . political subdivisions, governmental agencies, public corporations, and charitable organizations.” The Bill also defines restrictive covenant as an agreement between an employee and an employer concerning existing or prospective employment, or an agreement between employee and employer with respect to severance pay.
The Bill outlines that for a restrictive covenant to be enforceable it must meet the following requirements:
- If the covenant is a condition to commence employment, the employer must disclose the terms and conditions of the covenant in writing at the time of offer or thirty days prior to commencement of employment;
- If the covenant is a condition to existing employment or severance pay, the terms and conditions must be disclosed in writing at least thirty days before covenant takes effect;
- The agreement, whether a condition to commence or continue employment or for severance pay, must be signed in writing by both parties and must expressly state that employee has the right to counsel prior to signing;
- The agreement cannot be more restrictive than necessary to protect an employer’s “legitimate business interests” and “shall be limited to protecting the employer’s trade secrets;”
- The agreement must be reasonable in scope and limited to the services provided by the employee within the last two years of service; and
- The agreement does not waive other legal rights under any other law, rule, regulation, or common law, and does not penalize an employee for challenging the validity or enforceability of the agreement.
Furthermore, the Bill would also bar non-service agreements, including agreements that prohibit employees from accepting business from clients or providing services to clients without solicitation by the employee. The Bill would also prohibit agreements that restrict employees from working with former colleagues, whether through use of no-hire agreements or other related restrictions.
In addition to the above-outlined requirements, the Bill provides that for the restrictive covenant to remain enforceable, an employee must voluntarily resign his or her employment or be terminated for good cause, defined as “a reasonable basis related to an individual employee for termination of the employee’s employment in view of relevant factors and circumstances.” A written document outlining what constitutes good cause must be provided to all employees. Should an employer violate any provisions of the section, the Commissioner of Labor can impose a civil fine up to $5,000.
While it is too early to tell if this Bill will advance, its introduction shows that there is still interest in the New York State legislature (as there is in other state legislatures) in regulating the use of noncompetes and other restrictive covenants.
The 2025 Bill on the state level follows at least three bills introduced in the New York City Council in 2024 that seek varying restrictions on noncompetes, from a complete ban on noncompetes to a ban on the use of noncompetes for low-wage earners only. The New York City Council bills were all referred to the Committee on Consumer and Worker Protection (the “Committee”) and have remained in the Committee without further action.
We will continue to monitor and provide updates on this topic.
Gianna Dano, a Law Clerk in Epstein Becker & Green’s Newark Office (not admitted to practice), contributed to the preparation of this piece.
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