Non-Competes are out in New York

One of the dreaded elements of finding an associateship position in dentistry. No more. A non-compete agreement clause is a type of restrictive covenant. Restrictive covenants limit an employee from working in a certain geographic area after the end of employment. In New York State, this can vary from a number of blocks to a number of miles. Also, it can vary from 1 year after employment to 3 years.

Contracts

Most contracts in the dental field today include a non-compete clause. Dental Service Organizations (DSO) are especially notorious for including these to lock an employee into the system. Without negotiation, the clauses pose a significant barrier to an employee’s future jobs. According to the American Dental Association, “The justification for requiring the post-employment restriction is that the employer has invested energy, time, and money in building the practice.” From the corporate point of view, the employer “needs the restriction to preserve its business and avoid helping ‘create’ a competitor through the employment.” Thus, the non compete protects an employer from losing patients and also employees.

The Bill

On June 7, 2023, the New York State Senate passed Bill No. S03100. This would impose a total ban on the employee non compete agreement in the state of New York. According to Bill No. S03100, employers would also no longer be allowed to “seek[s], require[s], demand[s], or accept[s] a non-compete from any covered individual.”

The proposed legislation signifies a noteworthy shift in New York’s stance on non-compete agreements. If enacted, these Bills would largely outlaw non-compete clauses in employment contracts across the state, marking a firm move against anti-competitive business practices. The Bills resonate with the language used by the Federal Trade Commission in a proposed rule to prohibit most non-compete agreements, highlighting them as an unfair method of competition​.

Implications

Following its passage in both the New York State Assembly on June 20, 2023, it now awaits Governor Kathy Hochul’s signature or veto. Notably, Governor Hochul has until December 31, 2023, to “call up” the Bill for action. Once she receives the Bill, a 10-day window opens during which she can either sign or veto it. If no action is taken, the Bill automatically becomes law. The Governor also has the option to request a “chapter amendment.” This entails provisionally signing the Bill with the understanding that the legislature will re-pass it with changes​.

The broader ramifications of this legislation are significant, as it may set a precedent for other states considering similar bans on non-compete agreements. It reflects a growing concern over the restrictive nature of such agreements on employees’ career mobility and the subsequent impact on the market competitiveness.