If someone put a gun to my head and asked what the two biggest problems I saw with New York's proposed noncompete ban, without a doubt, it would be the following:
The Two (2) Most Glaring Problems with New York's Noncompete Ban
First, the language governing the statute of limitations for challenging the validity of a particular noncompete clause is remarkably unclear. And you don't need to take my word for it; see for yourself:
The employee shall bring such action within two years of the later of: (i) when the prohibited non-compete agreement was signed; (ii) when the employee learns of the prohibited non-compete agreement; (iii) when the employment relationship is terminated; or (iv) when the employer takes any steps to enforce the non-compete agreement.
By way of example, under section (ii), an employee can simply contend that "they didn't know" about the noncompete clause (which, by the way, they must have signed), and that alone could allow the two-year period to be extended indefinitely. The problem with this should be obvious: the legislature's definitions for what triggers the two-year clock to run effectively eliminates any meaningful bright-line test to make that determination.
Second, in a different vein, unlike other states that put in place bans on noncompete agreements, New York's proposed ban does not include an express carve-out provision that permits noncompete agreements in connection with the sale of a business. This is highly problematic because in the vast majority of instances, the primary value that is being paid for in the connection with the purchase of a business it its customer roster, or goodwill. And if the seller of a business is permitted to immediately go out and compete for that same customer base, then what is the value of the business?
Probably not very much.
To be clear, there are certainly many other holes in the proposed legislation. It's just that these two particular ones - at least in my mind - are the most glaring.
