New York State Senator Sean Ryan recently introduced Senate Bill 4641 (the “Bill”) that proposes to ban noncompete agreements for most New York employees.
If passed, the Bill would prospectively prohibit employers from enforcing noncompetes, except for highly compensated individuals who make an average of $500,000 or more per year and in the context of the sale of a business. The Bill would not apply retroactively, so if passed, existing noncompetes would remain enforceable consistent with New York common law.
The Bill follows Governor Hochul’s December 2023 veto of Senate Bill 3100-A, also sponsored by Senator Sean Ryan, that sought to broadly ban noncompetes for all employees regardless of income. As we reported in December 2023, Governor Hochul stated that she would not sign an outright noncompete ban, but instead preferred a “balance” with a compensation threshold and a carveout for noncompetes entered into in connection with the sale of a business. The new Bill does just that.
Who’s Covered?
If passed, employers would not be able to enter into noncompete agreements with any workers earning less than the highly compensated threshold or with certain health-related professionals, regardless of their annual income, such as physicians, physician assistants, chiropractors, dentists, perfusionists, veterinarians, physical therapists, pharmacists, nurses, podiatrists, optometrists, psychologists, occupational therapists, speech pathologists/audiologists, and mental health practitioners (collectively, “covered individuals”).
Employers would be able to enter into and/or seek to enforce noncompete agreements with “highly compensated” individuals who are not health-related professionals.
Highly compensated individuals, as defined in the Bill, are those making an average of $500,000 or more per year based on their three most recent W-2 or K-1 statements. If enacted the law will require individuals without three years of W-2 or K-1 statements to average the amounts listed on the statements for the period they have worked to determine their average compensation. Beginning in 2027, the $500,000 threshold will increase based on the Consumer Price Index.
The Bill would also allow noncompetes as a result of the sale of the goodwill of a business or sale of a majority ownership interest in a business for certain individuals or entities. To meet the sale of a business exception, the partner, member, or entity must either (1) own at least a 15% interest in the partnership or limited liability company or (2) own 15% or more of an interest in the business.
Prospective Effect and Notice Requirement
As presently drafted, the Bill would apply only on a prospective basis, meaning lawful noncompetes currently in place before the effective date of the Bill will remain enforceable, provided they meet the obligations of New York common law. The Bill’s restrictions will go into effect thirty days after the Governor signs the law.
The Bill also contains a notice requirement to inform employees of the new protections. Employers will be required to post a workplace notice developed by the New York State Department of Labor. Specific notice to individual employees would not be required.
Requirements of Common Law Reasonableness and Payment During Noncompete Period
Section 7 of the Bill provides that any noncompete that is permissible or enforceable under Section 1 of the Bill (i.e., for highly compensated individuals and, apparently, in the sale of business context) must:
- still comply with New York common law, including the following factors: (i) it is reasonable in time, geography, and scope (and as to time, the Bill provides that a noncompete shall not contain a term greater than one year), (ii) it does not impose an undue burden on the employee, (iii) it does not harm the public, and (iv) its restrictions are no greater than necessary to protect the legitimate business interests of the employer; and
- provide for the payment of salary during the period of enforcement of the noncompete.
Enforcement and Remedies
Pursuant to the Bill, covered individuals would be able to bring a civil action for injunctive relief and damages against employers or other persons who seek, require, demand, or accept a prohibited noncompete.
Employers cannot attempt to avoid the Bill’s requirements by maintaining a non-New York choice-of-law provision within the noncompete. Section 8 of the Bill states 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 is and has been, for at least thirty days immediately preceding the covered individual’s cessation of employment, a resident of New York or employed in New York, including individuals who work remotely in another state but who report to a New York worksite or office or who report to a New York-based supervisor.”
If a court were to find that the noncompete was prohibited under the Bill, the court would have the ability to void the agreement, enjoin the employer’s conduct, and award lost compensation, liquidated and compensatory damages, and reasonable attorney’s fees and costs. The Bill also states the court “shall award liquidated damages” of no more than $10,000 for covered individuals affected by a noncompete that violates the Bill.
Takeaways
The Bill would limit the number of employees with whom employers can enter into noncompetes, so employers with employees in New York are advised to consider taking steps to prepare, in case the Bill is passed. First, employers who are considering entering into noncompete agreements with current employees should do so before the effective date of the Bill. For future hires made after the effective date of the Bill, employers will need to rely on agreements containing non-solicitation and confidentiality restrictive covenants, rather than noncompetes. As we reported after the FTC introduced its Noncompete Rule, employers also should consider working with outside counsel to conduct a trade secret assessment to ensure that their confidential information is protected as robustly as possible.
This Bill is the second New York bill introduced in 2025 that seeks to restrict noncompetes. As we reported, in January 2025 the New York State Assembly introduced another bill that would mandate new requirements for lawful restrictive covenants. That bill remains pending in the Assembly’s Labor Committee.
Currently, the Senate Bill 4641 has been referred to the Senate Labor Committee for further discussion. As Senate Bill 4641 and Assembly Bill A01361 progress through the legislative process, we will be sure to update you.
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