Key Takeaways
- In the absence of the Federal Trade Commission’s noncompete rule, the New York Legislature is once again advancing legislation to restrict the use of noncompetes.
- The New York State Senate passed a bill that would ban the use of noncompetes for (1) anyone earning less than $500,000 per year and (2) physicians and certain other medical and health related professionals.
- The bill has been referred to the Labor Committee in the New York State Assembly, which will need to approve the bill before sending it to the full Assembly for a vote, and then to Gov. Kathy Hochul for execution, in order to become law.
As alluded to in our alert regarding nationwide changes in noncompete law, on June 9 the New York State Senate passed Senate Bill S4641 (S4641), which would restrict the use of noncompetes in New York for anyone earning less than $500,000 per year and “health related professionals.” Specifically, the bill would ban the use of any agreement that “prohibits” or “restricts” certain employees “from obtaining employment, after the conclusion of the employment.” The bill applies to the following:
- A person making $500,000 per year or less, as reflected on their W-2, K-1 or other statements
- Any “health related professional,” which includes certain licensed physicians, physician assistants, chiropractors, dentists, perfusionists, veterinarians, physical therapists and pharmacists, among others
Critically, even for those individuals who may be subject to a noncompete under the proposed wage thresholds, the restriction still must meet New York’s common law criteria for noncompetes, including that it is reasonable in time (up to a maximum of one year) and geographic scope, necessary to protect a legitimate interest, etc. Further, the provision must “provide for the payment of salary during the period of enforcement” of the noncompete.
The Senate bill was forwarded to the Assembly June 9, where it was referred to the Labor Committee, but there has been no movement since then. If the bill clears the Assembly, it still must be signed by Hochul.
Hochul vetoed a different noncompete bill in December 2023, purportedly due, at least in part, to the lack of a low-wage restriction. The $500,000 wage threshold in the current bill appears to address the governor’s prior objections to bans on noncompetes and would provide New York with the highest wage threshold in the country. These wage thresholds are becoming increasingly prevalent across the country. Notably, the ban on noncompetes for physicians and certain other medical and “health related” professionals applies regardless of their income, creating another class of workers that has received additional noncompete protection in recent years.
S4641 includes a carve-out for the sale of a business or disposition of a majority ownership interest by a partner in a partnership, but only if the partner or business owner owns at least 15 percent of the business. Thus, by focusing on the ownership percentage, rather than the value of the ownership interest, the exception thresholds will likely impact the sale of small family-owned businesses more frequently than large corporate entities or partnerships.
Notably for New York employers, S4641 creates a private right of action for employees to sue employers that impose or require new noncompetes once the law is enacted. The bill provides for a seemingly mandatory award of liquidated damages, not to exceed $10,000 per violation, for “every covered individual affected.” In addition to the liquidated damages, S4641 also includes awards for lost compensation, compensatory damages, and reasonable attorneys’ fees and costs, creating a broad private litigation scheme for enforcement under the bill.
The legislation expressly permits the continued use of agreements for fixed-duration employment, protection of trade secrets and confidential and proprietary information, and prohibitions on the solicitation of clients, provided that such obligations do not otherwise restrict competition in violation of bill.
If S4641 makes it out of committee, it will then be subject to a full vote in the Assembly before it is delivered to Hochul for her consideration. The timing required for her action and whether she needs to explicitly sign or veto the bill depends on whether the Legislature is still in session (it currently is not, and will not be until 2026), leaving this bill open to continued negotiation between the Legislature and the governor.
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