Employers have traditionally used non-compete provisions in agreements with employees and independent contractors from bringing the skills acquired from their current employers to competitors or creating competing business for an agreed period of time. Non-compete provisions have been important tools used by employers to protect their trade secrets and confidential information, including client lists. 

As of August 2023, employers across New York are bracing themselves for a substantial change that will significantly impact employers' ability to protect their trade secrets and confidential information if Governor Kathy Hochul signs the bill making the new proposed New York Labor Law § 191-d a law.  This statute would prohibit employers from including non-compete clauses in employment agreements, upending the traditional methods used by employers to protect their business interests.  This article delves into the implications of this new law and suggests strategies employers could implement to protect their businesses. 

Dissecting Labor Law 191-d

The proposed new law prohibits an employer from seeking, requiring, demanding, or accepting a non-compete agreement from any covered individual.   Labor Law 191-d defines a "non-compete agreement" as any agreement that restricts a covered individual from competing with an employer after the employment agreement is terminated.  A "covered individual" includes any employee, independent contractor or other person that performs work or services for an employer and is in a position of economic dependence on that employer.  The new law applies to any contract entered into or modified on or after August 7, 2023, but does not retroactively affect contracts signed before this date.

Labor Law 191-d does more than simply ban the enforcement or use of non-compete agreements in New York. It gives employees and independent contractors a two-year window to sue employers to void the non-compete provision, enjoin enforcement of the provision and allows courts to award employees and independent contracts liquidated damages up to $10,000, plus attorneys' fees, costs, and expenses.

Exceptions to the New Law

The law carves out exceptions for agreements that establish a fixed term of service, prohibit disclosure of trade secrets or confidential and proprietary client information, and prohibit solicitation of clients of the employer that the covered individual learned about during employment. These exceptions are important as they provide employers with alternative avenues to protect their business interests while complying with the new law.

Alternative Strategies for Employers

In light of these changes, employers should consider the following strategies to protect their confidential information and trade secrets:

• Non-disclosure agreements (NDAs): NDAs can be tailored to meet the specific needs of your business and protect a wide range of information, including trade secrets, customer lists, and financial information. They provide a legal framework to safeguard your business's proprietary information.

• Trade secret protection laws: New York has robust trade secret protection laws that allow employers to sue individuals who misappropriate trade secrets. Familiarizing yourself with these laws can provide additional protection for your business.

• Employee policies: Clear and enforceable employee policies can protect your confidential information. These policies should prohibit employees from disclosing confidential information and clearly state the consequences for violating the policy. Regular training and reinforcement can ensure these policies are effectively implemented.

Conclusion

Labor Law 191-d represents a significant change for employers in New York that poses challenges their ability to protect their confidential information and trade secrets.  If you are an employer in New York, we encourage you to review your form employment agreements and policies with your attorneys to ensure they do not contain any prohibited restrictive covenants and implement new strategies to protect your confidential information and trade secrets.  If you do not have an attorney, Turman Legal Solutions PLLC can help you review your existing agreements and help you formulate a new strategy to protect your legitimate business interests. 

Disclaimer:

This article is intended for informational purposes only and does not constitute legal advice. The information contained herein may not be applicable in all situations and may not, after the date of its presentation, even reflect the most current authority. Nothing contained in this article should be relied upon or used as a substitute for legal advice from a qualified attorney.  This article may also be considered attorney advertising under the rules of certain jurisdictions.