On February 10, 2025, New York State Senator Sean Ryan introduced Senate Bill S4641, which seeks to broadly prohibit the use of non-compete agreements in employment contracts. The proposed ban aligns with a growing national trend aimed at limiting non-compete agreements, particularly in the healthcare sector, where such restrictions have been criticized for limiting workforce mobility. Sen. Ryan previously sponsored a similar bill in 2023, which the legislature passed. However, Gov. Hochul vetoed that measure, citing concerns over its broad scope and potential economic consequences.
Key Provisions of S4641
The bill introduces several key definitions under a newly proposed Section 191-d of New York’s Labor Law:
- Non-compete agreement: Defined as “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.” This definition is limited to true non-compete agreements and does not extend to other restrictive covenants such as confidentiality or non-solicitation agreements.
- Covered individual: Refers to any worker who is economically dependent on an employer, regardless of whether they are employed under a formal contract. However, this category excludes highly compensated individuals.
- Highly compensated individual: Defined as any person earning an average annualized cash compensation of $500,000 or more, calculated using the individual’s three most recent W-2 and K-1 statements. If the person has been employed for less than three years, the calculation is based on the entire duration of their employment.
- Health-related professional: Encompasses a wide range of medical practitioners licensed under New York law, including physicians, physician assistants, chiropractors, dentists, veterinarians, pharmacists, nurses, psychologists, and mental health practitioners.
Prohibitions on Non-Compete Agreements
- Under Section 191-d, employers and associated entities—including corporations, partnerships, limited liability companies, and not-for-profit organizations—would be prohibited from seeking, requiring, demanding, or accepting non-compete agreements from any covered individual or health-related professional.
- Any non-compete agreements entered into after the effective date of the law would be deemed null, void, and unenforceable.
Private Right of Action
The bill grants covered individuals the right to file a civil lawsuit against any employer or entity that attempts to enforce a prohibited non-compete agreement.
The statute of limitations for bringing such a lawsuit would be two years, starting from the later of the following events:
- The date the non-compete agreement was signed.
- The date the individual first becomes aware of the agreement.
- The date of termination of employment or contractual relationship.
- The date the employer attempts to enforce the non-compete agreement.
Courts would have the authority to invalidate non-compete agreements and issue remedies that may include:
- Injunctive relief preventing the enforcement of the agreement.
- Liquidated damages of up to $10,000 per affected individual.
- Compensation for lost wages, damages, and attorney’s fees.
Exceptions and Carve-Outs
While the bill broadly prohibits non-compete agreements, it does include several exceptions:
- Employers would still be permitted to enter into agreements that:
- Establish fixed terms of employment or require exclusivity during the term of employment.
- Protect trade secrets and other confidential information.
- Restrict employees from soliciting clients of their former employer.
- The bill also exempts non-compete agreements related to the sale of a business. Specifically, individuals who sell the goodwill of a business, transfer a majority ownership interest, or own at least 15% of a business may still be subject to enforceable non-compete clauses.
- The law would not override existing protections under Section 202-k of New York’s Labor Law, which already bans non-compete agreements for certain employees in the broadcast industry.
Severability
The bill includes a severability provision, ensuring that if any part of the law is found to be invalid, the remaining provisions would still be enforceable.
Key Differences From the 2023 Bill
The latest version of the bill makes several changes in response to concerns outlined in Gov. Hochul’s veto memo from December 2023:
- Inclusion of a salary or compensation minimum threshold (the “highly compensated individual”).
- Inclusion of a carve-out for the sale of a business.
- Omission of language identical to California’s Business & Professions Code §16600.
Next Step for Employers
If the bill is passed by the New York State Legislature, it will be sent to Gov. Hochul, who will have three options:
- Sign the bill into law, enacting the ban on most non-compete agreements.
- Veto the bill, as she did in 2023.
- Negotiate amendments through the chapter amendment process to address remaining concerns.
We expect intense lobbying efforts for and against the bill, as happened in 2023. We recommend employers stay on top of such legislative developments.
If you have any questions regarding non-compete agreements and this proposed bill, please feel free to contact Forework HR representative.