The pending legislation seeks to prohibit employers from using a noncompete agreement with covered individuals, including all agreements that prohibit or otherwise restrict covered individuals from obtaining new employment.

The latest employment legislation pending before the New York State Assembly seeks to prohibit employers from using noncompete agreements with certain categories of employees.

History of Noncompete Legislation in New York

This is not the first time New York has attempted to pass legislation prohibiting employers from using noncompetes. In 2023, bill A1278B/S3100A sought to ban nearly all employee noncompete agreements with New York employees, but was ultimately vetoed by Governor Kathy Hochul. At the time of her veto, however, Governor Hochul indicated her willingness to sign a narrower bill in the future, as she “proposed banning noncompete agreements for anyone making below the median wage in New York” in her first executive budget. See our previous Alert on this topic.

Senate Bill S4641A – Who Would Be Covered?

New York’s Senate Bill S4641A, if signed into law, would prohibit “non-compete agreements” for any employee that qualifies as either a “covered individual” or “health related professional.”

• A “covered individual” is anyone that “performs or has performed work or services for another person on such terms and conditions that they are … in a position of economic dependence on, and under an obligation to perform duties for, that other person,” except those earning $500,000 or more per year. This earnings threshold is subject to change each year based on the consumer price index for all urban consumers for New York state.
• A “health related professional” is anyone licensed under New York’s Education Law as a physician, physician assistant, dentist, physical therapist, pharmacist, nurse, psychologist or veterinarian, among other medical professionals that are specifically identified in the bill.

Which Types of Agreements Are Covered by the Bill?

The pending legislation seeks to prohibit employers from using a noncompete agreement with covered individuals, including all agreements that prohibit or otherwise restrict covered individuals from obtaining new employment.

Notably, the bill would exclude agreements that (a) establish a fixed term of service or exclusivity during employment; (b) prohibit the disclosure of trade secrets; (c) prohibit the disclosure of confidential and proprietary client information; or (d) prohibit solicitation of the employer’s clients. The bill also carves out noncompetes entered in connection with the sale of a business.

Are There Any Exceptions to the Bill?

The bill would apply only to agreements sought or entered into after the bill’s effective date, which if passed is likely to be sometime in 2026.

Can the Bill Be Circumvented by Applying Another State’s Law Under Contract?

In many cases, the bill would prevent an employer from circumventing it by applying another state’s law by contract. The bill provides that “[n]o choice of law provision or choice of venue provision that would have the effect of avoiding or limiting the requirements of this section shall be enforceable” if the covered individual was a resident of New York, reported to a New York office or was accountable to a New York supervisor within the 30 days immediately preceding their cessation of employment.

Are There Notice Requirements Under the Bill?

Yes. The bill would require that “[e]very employer shall inform their employees of their protections and rights under this section by posting a notice” which “shall be posted conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.”

What Consequences Would the Bill Impose If an Employer Violates the Proposed Law?

The bill would make agreements that do not satisfy its requirements null, void and unenforceable. It would also create a private cause of action for covered individuals to seek injunctive relief, liquidated damages and/or an award of lost compensation, compensatory damages and reasonable attorneys’ fees against an employer alleged to have violated the proposed law. The bill would cap liquidated damages at $10,000 per covered individual or health-related professional involved.

Moving Forward

Senate Bill S4641A has passed the New York Senate and is still in committee before the House. Although the bill has not yet passed the full New York Assembly, given that the broader 2023 bill that sought to ban all employee noncompetes was passed, it is likely that this bill will pass as well.

What is less certain is whether Governor Hochul will sign it into law. Although she previously indicated her willingness to sign legislation prohibiting noncompetes applying to those earning less than the median wage (approximately $59,959 per year, according to the New York Department of Labor’s website), Senate Bill S4641A’s scope is much broader by covering virtually any employee earning less than $500,000 annually.

In the meantime, employers based in or with employees in New York should engage counsel to reevaluate their current and prospective restrictive covenant agreements and programs and consider whether and how to implement new agreements before Senate Bill S4641A is potentially signed into law.

For More Information

If you have any questions about this Alert, please contact Shannon Hampton Sutherland, Lawrence H. Pockers, Seth Dawicki, any of the attorneys in our Trade Secrets and Non-Compete Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.