New York employers likely breathed a sigh of relief when Governor Hochul vetoed the state’s 2023 non-compete bill, but newly introduced legislation may reignite employer’s concerns. In December 2023, Governor Hochul vetoed non-compete bill S3100A, which would have banned all non-compete agreements in employment, regardless of context (see HERE). Governor Hochul cited several concerns in her veto memo, including the failure to include a salary cap on employee compensation, a carve-out for the sale of a business, or exceptions for the forfeiture of incentive compensation for employees who join a competitor or for garden leave pay in lieu of compensation.
We presumed the legislature would introduce a new bill, and – for better or worse – it finally happened. On February 10, 2025, the New York Senate introduced S4641, which responds to some of Governor Hochul’s concerns but, if passed, would still prohibit nearly all non-compete agreements and certain restrictive covenants in employment agreements. Here’s what you need to know.
General Terms and Coverage
As proposed, S4641 would amend the New York Labor Law to add Section 191-d, which would prohibit an employer from seeking, requiring, demanding, or accepting a non-compete agreement from any covered individual or health related professional.
- Covered Employers: Any employer, or its agent, or the officer or agent of any corporation, partnership, limited liability company, not-for-profit corporation or association or other entity.
- Non-Compete Agreement: Any “agreement, or clause contained in any agreement, between an employer and a covered individual that restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”
- Covered Individual: Any person other than a “highly compensated individual” (i.e., compensated at an average annualized rate of cash compensation of at least $500,000 per year) who 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.
- Health Related Professional: A licensed physician or physician assistant, chiropractor, dentist, perfusionist, veterinarian, physical therapist, pharmacist, nurse, podiatrist, optometrist, psychologist, occupational therapist, speech pathologist, or mental health practitioner.
Carve-Outs
If the agreements do not otherwise restrict competition in violation of the proposed law, S4641 permits agreements with a prospective or current covered individual that (1) establish a fixed term of service 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. Subject to certain conditions, S4641 also allows non-compete agreements or other similar covenants in the sale of the goodwill of a business or the sale or disposition of a majority ownership interest in a business.
Permissible Agreements
Any non-compete that is permissible or enforceable under S4641 must meet all requirements for determining enforceability under New York common law, including an agreement that (1) is reasonable in time, geography, and scope, (2) does not impose an undue hardship on the employee, (3) does not harm the public, (4) is necessary to protect the employer’s legitimate business interests, and (5) contains restrictions no greater than necessary to protect the legitimate business interests of the employer.
Notice Requirement
S4641 would require employers to post a notice informing employees of their rights and protections under the law in an easily accessible and well-lit place that is frequented by employees and applicants.
Private Right of Action
S4641 creates a private right of action for covered individuals to file a civil action in court, which must be brought within two years from the later date on which (1) the prohibited agreement was signed, (2) the covered individual learns of the prohibited non-compete agreement, (3) the employment or contractual relationship is terminated, or (4) the employer takes any step to enforce the non-compete agreement.
Employer Takeaways
S4641 is currently pending and must pass through the Legislature before it is delivered to Governor Hochul to sign, veto, or negotiate amendments. If signed, S4641 would take effect 30 days thereafter and would apply only to new or modified non-compete agreements without retroactive effect.
To prepare for a potential ban on non-competes, employers should:
- Inventory existing non-compete agreements that may be implicated under S4641; and
- Exercise caution when entering into or attempting to enforce non-compete agreements.
If you have any questions relating to S4641 or need assistance navigating this evolving area of law, please reach out to the NFC Attorney with whom you typically work or call us at 973.665.9100.
