New York State Senate Introduces Bill that Would Ban Non-Compete Agreements

At the end of the 2023 New York legislative session, Senator Paul Ryan introduced a bill to broadly ban non-compete agreements in the state. While the bill passed the New York State Senate and Assembly, Governor Kathy Hochul vetoed it in December 2023. On February 10, 2025, Senator Ryan introduced a new bill (S4641) that narrows the original proposal while still seeking to ban most prospective non-compete agreements in New York. It also establishes a civil cause of action for employees who believe an employer has violated the statute.

The new bill includes carve-outs for highly compensated individuals and business owners involved in certain sales of business. Consistent with the prior bill, the new bill also includes an express exemption for some restrictive covenants, such as nondisclosure and client nonsolicitation covenants. By its terms, the proposed ban would not have any retroactive effect on non-compete agreements entered into before the effective date.

The bill is currently in committee in the New York Senate and must be passed by the legislature and signed by the governor to take effect.

SCOPE OF THE PROPOSED Non-compete BAN

The bill would broadly prohibit employers and their agents, and other entities and their officers and agents, from seeking, requiring, demanding, or accepting a non-compete agreement from any covered individual or health related professional. Such non-compete agreements sought, required, demanded, or accepted from covered individuals or health related professionals after the effective date of the ban “shall be null, void, and unenforceable.” These operative terms are defined as follows:

• “Non-compete agreement” means 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.
• “Covered individual” means any person other than a highly compensated individual (see below) who, whether or not employed under a contract of employment, performs or has performed 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.
• “Health-related professional” includes physicians, physician assistants, chiropractors, dentists, perfusionists, veterinarians, physical therapists, pharmacists, nurses, podiatrists, optometrists, psychologists, occupational therapists, speech pathologists and audiologists, and mental health practitioners licensed under New York law.

Based on the definition of “non-compete agreement,” employers will need to consider whether forfeiture-for-competition, garden-leave, and other similar covenants used to protect competitive interests “prohibit or restrict” employees from obtaining employment “after the conclusion” of their employment.

EXCEPTIONS TO THE PROPOSED NON-COMPETE BAN

The bill includes limited exceptions to the proposed non-compete ban for highly compensated individuals and business owners involved in certain sales of business.

• “Highly compensated individuals” would be expressly excluded from the definition of “covered individuals” and are thus excluded from the proposed non-compete ban. The bill defines “highly compensated individual” as any individual “who is compensated at an average annualized rate of cash compensation . . . equivalent to or greater than [$500,000] per year.” The compensation rate is determined based on the income listed in the three most recent W-2 statements or K-1 statements, suggesting that partners of certain corporate entities are likely included in the definition. The compensation standard applicable to highly compensated individuals will be adjusted each calendar year, beginning in 2027, based on increases determined by the Consumer Price Index for all Urban Consumers for New York state.
• Certain business sales would also be excluded from the proposed non-compete ban. The bill states that nothing in the proposed ban would prohibit non-compete agreements in the sale of the goodwill of a business or the sale or disposition of a majority of an ownership interest in a business by a partner of a partnership, a member of a limited liability company, or an entity for:
  • any such partner of a partnership or member of a limited liability company owning at least a 15% interest in such partnership or limited liability company; or
  • any such person or entity owning 15% or more ownership interest in a business.

FIXED TERM AGREEMENTS, EXCLUSIVITY AGREEMENTS, AND OTHER RESTRICTIVE COVENANTS REMAIN LAWFUL

The bill would continue to permit employers to enter into agreements with prospective and current covered individuals and health related professionals that (1) establish a fixed term of services and/or exclusivity during employment, (2) prohibit disclosure of trade secrets; (3) prohibit disclosure of confidential and proprietary client information; or (4) prohibit solicitation of the employer’s clients. The bill does not address employee nonsolicitation covenants, indicating that such covenants fall outside the purview of the proposed ban.

MANDATORY NOTICE REQUIREMENTS

The bill would require employers to inform employees of their “protections and rights” under the non-compete ban by conspicuously posting a notice in easily accessible places customarily frequented by employees and applicants. Such notice would be developed and provided by the New York Department of Labor.

ENFORCEMENT MECHANISMS AND PENALTIES FOR VIOLATIONS OF THE NON-COMPETE BAN

A covered individual would be permitted to bring a civil action against an employer or person alleged to have violated the proposed non-compete ban within two years of when (1) the non-compete agreement was signed, (2) the covered individual learned about the non-compete agreement, (3) when the employment or contractual relationship is terminated, or (4) when the employer takes steps to enforce the non-compete agreement. In addition to having jurisdiction to void challenged non-compete agreements, courts considering challenges to agreements under the proposed ban will have an array of available remedies, including, but not limited to, liquidated damages not to exceed $10,000 per covered individual or health-related professional, lost compensation, compensatory damages, and reasonable attorneys’ fees and costs.

CHOICE-OF-LAW AND FORUM-SELECTION PROVISIONS

Consistent with the recent non-compete legislation in other states, the bill would prohibit choice-of-law and choice-of-venue provisions that would “have the effect of avoiding or limiting” the non-compete ban for covered individuals who lived or were employed in New York for at least 30 days before the termination of their employment, including “individuals who worked remotely in another state but who reported to a New York worksite or office or who reported to a New York-based supervisor.”

EMPLOYER OUTLOOK

Despite the uncertainty surrounding whether the ban will be signed and passed, with or without modification, employers who have New York-based employees should consider preparing for the bill by engaging in the following:

1. Review positions for which the company has required employees to sign a non-compete. For these positions, consider preparing agreements that include restrictive covenants that comply with the proposed legislation and also continue to protect legitimate interests in clients, employees, and information.
2. For all restrictive covenant agreements, review such agreements to identify any operative covenants that may amount to a de facto non-compete agreement that would be prohibited under the proposed non-compete ban and consider modifications that comply with the proposed legislation.
3. Coordinate with those in charge of onboarding and other notice procedures to ensure timely notice of the bill if passed.