New York in the summer: warm days, Shakespeare in the Park, visits to the beach, and the end of the New York State legislative session–which often means a few surprises for New York employers. This summer, not only do employers have to contend with New York’s amended WARN Act regulations and the enforcement of New York City’s Automated Employment Decision Tool law (both now effective), they also have to keep a close eye on four New York State bills that have cleared both houses of the state legislature and could be signed by Governor Hochul–including one that would arguably be the nation’s broadest ban on employee noncompete agreements. We highlight two changes–and four that could be coming down the pike–New York employers should pay close attention to this summer.
Two to know
1. Amendments to New York’s WARN Act regulations now in effect.
New York State’s proposed amendments to its Worker Adjustment and Retraining Notification (WARN) Act regulations were adopted on June 21 and are now in effect. The definition of a covered employer has been expanded, remote employees must now be included in the threshold count, certain notices must include more information or be provided electronically, and exceptions for providing notice have changed (among other modifications). In addition, there’s a new York State Department of Labor WARN portal for employers to use for “a more streamlined user experience.” Want the details on the WARN Act regulation changes and some helpful tips for employers? See our prior blog here.
2. Enforcement of New York City’s Automated Employment Decision Tool law began July 5.
New York City’s Local Law 144 prohibits employers and employment agencies from using an automated employment decision tool to substantially assist certain employment decisions unless the tool has been subject to a bias audit within one year of the use of the tool, information about the bias audit is publicly available, and certain notices have been provided to employees or job candidates. Violations of the provisions of the law are subject to a civil penalty. Enforcement of the law began July 5, and employers need to be diligent. For those who haven’t done so yet, the first (and immediate) step is to take inventory of HR tech tools. Legal should partner with HR and IT to determine whether the company uses automated employment decision tools to make any employment decisions in a manner that triggers the law. See our prior blog here for additional steps to take, as well as further details on the law, penalties, and some practical tips for employers.
Four to watch
1. New York could become the fifth state to ban employee noncompetes.
On June 21, the New York State Assembly passed S3100 (already passed by the New York State Senate), which will be the most restrictive state-level ban on employers’ use of noncompetes to date if signed into law by Governor Hochul.
Under the bill, every contract that restrains anyone from engaging in a lawful profession, trade or business of any kind is void to the extent of such restraint.
The ban: The bill does not permit employers (or their agents) to “seek, require, demand, or accept a non-compete agreement” from a “covered individual.”
- A “non-compete agreement” is any agreement (or clause in an agreement) between an employer and a “covered individual” that prohibits or restricts the individual from obtaining employment after the conclusion of employment with the employer.
- A “covered individual” is “any other person” who performs work or services for another person on such terms and conditions that puts them in a position of economic dependence on and under an obligation to perform duties for that other person–regardless of whether they are employed under a contract of employment.
Private right of action and liquidated damages: S3100 allows for a private right of action for covered individuals. Suit must be filed within two years of the later of i) when the prohibited noncompete was signed, ii) when the covered individual learns of the prohibited noncompete agreement, iii) when the employment or contractual relationship is terminated, or iv) when the employer takes any step to enforce the noncompete agreement. The court can void any such noncompete agreement and order all appropriate relief, including injunctive relief, liquidated damages (not more than $10,000), lost compensation and damages, and reasonable attorneys’ fees and costs.
Note: no “sale of business” exception: In its current form, the bill does not explicitly provide a carve out from the ban for the sale of a business–unlike other states with broad noncompete bans including California, North Dakota and Oklahoma (see our blog here) or even the Federal Trade Commission’s proposed rule severely restricting noncompetes (see our blog here).
Potential upsides for employers: The bill does not prohibit an employer from entering into an agreement with a prospective or current covered individual that prohibits disclosure of trade secrets, disclosure of confidential and proprietary client information, or the solicitation of clients of the employer that the covered individual learned about during employment, or from establishing a fixed term of service–as long as the agreement does not otherwise restrict competition in violation of the bill. In addition, though the bill would take effect 30 days after it becomes law, only noncompetes entered into or modified on or after its effective date would be included in the ban-meaning that noncompetes already entered into on or before the bill’s effective date should be safe as long as they otherwise comply with applicable law.
Clarification would be helpful on a few points:
- For instance, the bill does not speak to agreements prohibiting solicitation of employees one way or the other.
- In addition, a “position of economic dependence” is required for an individual to be a “covered individual,” but is not explained.
- And the bill fails to expound on what agreements unlawfully “otherwise restrict competition in violation of the bill,” leaving employers with no guidance as to whether agreements prohibiting disclosure of trade secrets, confidential and proprietary information or solicitation of clients will pass muster or be deemed too restrictive.
What’s next for S3100? Reports are that Governor Hochul is reviewing the legislation, but business groups are pushing for amendments to the bill. Employers should stay tuned–we’re tracking this and will keep you updated.
2. Employee inventions could remain their own if S5640 is signed into law.
If passed, S5640 would amend the New York Labor Law to introduce a new section, § 203-F, in relation to inventions made by employees. Under this new section, employment agreements may not include any provision that requires the employee to assign to their employer any rights in inventions that the employee developed on their own time and without the use of employer equipment, supplies, facilities, or trade secret information. Any violating provision would be unenforceable.
There is some protection for employers, though. The restriction on assignment would not apply to employee inventions that relate to (1) the employer’s business, (2) the employer’s anticipated research, or (3) those inventions that result from the employee’s work for the employer. If Governor Hochul signs S5640 into law, it would take effect immediately. For more details and helpful employer takeaways, see our blog here.
3. New York may take the bite out of NDAs in settlement agreements for discrimination and sexual harassment claims.
If Governor Hochul signs New York S4516 into law, it will prohibit settlement agreements relating to any claim involving sexual harassment–or any other form of unlawful discrimination–from containing a condition that requires the plaintiff to pay the defendant liquidated damages if the plaintiff violates the nondisclosure provision in the settlement agreement. S4516 would also prohibit such agreements from containing a provision requiring the plaintiff to forfeit all or part of the consideration for the agreement for violation of the nondisclosure provision. If signed into law in its current form, the law would be effective immediately and would apply to agreements entered into on or after that date. Employers should keep a close watch and check back here for developments.
4. New York employers may have to report employee race and gender data.
New York S636A, if signed into law, would impose new reporting obligations on New York employers similar to existing requirements in Illinois (see our blog here). S636A would amend the New York Business Corporation Law and New York Limited Liability Company Law to require corporations and LLCs which are required to file an EEO-1 report with the Equal Employment Opportunity Commission (EEOC) to file a copy of the EEO-1 report with the New York Secretary of State. The Secretary of State would in turn publish the information on gender, race and ethnicity of the corporation’s / LLC’s employees on its website within 90 days of receipt (or as soon as practicable). The EEOC’s EEO-1 report is required for all private sector employers with 100 or more employees (and federal contractors with 50 or more employees), and contains demographic workforce data, including data by race / ethnicity, sex, and job categories.
We’re keeping a close watch on these bills and other developments impacting New York employers. Check back for updates, and in the meantime, contact your Baker McKenzie employment attorney for your employment law needs.