Following the Federal Trade Commission’s proposed non-compete ban being overturned last year, certain state legislatures remain focused on limiting restrictions on employees. Recently, New Jersey and New York lawmakers each introduced bills proposing new restrictions on employment agreements and restrictive covenants.
New York Senate Bill S4641
Earlier this year, New York lawmakers introduced New York Senate Bill S4641 to prohibit nearly all non-compete agreements. Under the bill, employers are prohibited from requiring any “Covered Individual,” other than a “Highly Compensated Individual” (persons paid at least $500,000 a year), to execute non-compete agreements.
Notably, the proposed law broadly defines “Non-Compete Agreement” 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 included as a party to the agreement.” It is unclear whether this provision, if enacted, would be interpreted to extend to other restrictive covenants. The proposed law would also create a private right of action for employees against employers who violate the law.
Importantly, the bill contains several exceptions, including for non-compete covenants entered in connection with the sale of a business, subject to certain limitations. The proposed law also does not preclude use of agreements to: (a) establish a fixed term of service and/or exclusivity during employment; (b) prohibit disclosure of trade secrets; (c) prohibit disclosure of confidential and proprietary information; or (d) prohibit solicitation.
Bill S4641 was introduced in response to Governor Hochul’s December 2023 veto of a previous bill which proposed invalidating all non-compete agreements without exception. Bill S4641 seeks to strike a balance by including specified exceptions for permissible non-compete agreements, however, Gov. Hochul’s previous executive decisions make it difficult to predict whether this bill will be signed into law.
Although Bill S4641 remains under committee review with the New York Senate, employers should remain cognizant of further developments.
New Jersey Senate Bill S1688
In New Jersey, lawmakers have introduced New Jersey Senate Bill S1688, which could be slated for Senate consideration after a favorable report by the New Jersey Senate Labor Committee.
In 2019, the New Jersey Law Against Discrimination (NJLAD) was amended to prohibit confidentiality provisions in settlement agreement or severance agreement from concealing discrimination, harassment and retaliation details that led to the agreement. Senate Bill S1688 seeks to build on this recent amendment by preempting employers from requiring employees to execute employment agreements containing non-disclosure and non-disparagement provisions, or similar agreements that prohibit or restrict an employee’s ability to discuss discrimination, retaliation, or harassment even before a dispute arises.
Nelson Mullins is closely monitoring state and federal legislative developments related to restrictive covenants and related restrictions.
