Non-Compete Agreements in New York and New Jersey: What Employers Need to Know in 2026
Good Pine P.C. | Litigation | Business Law & Contracts | Employment | March 2026
The Law Is Changing — and the Window to Prepare Is Open
Non-compete agreements have long been a standard tool for protecting trade secrets, client relationships, and competitive advantage. In New York and New Jersey, that tool is under serious legislative threat. Active legislation in both states threatens to significantly restrict — or eliminate — most non-competes. Employers who understand the current law and act before enactment will be far better positioned than those who wait.
New York: Enforceable Today, but Narrowly
Under current New York common law, a non-compete is enforceable only if it protects a legitimate business interest, imposes no undue hardship on the employee, does not harm the public, and is reasonable in time and geographic scope. New York courts apply this standard with real skepticism. Restrictions exceeding one year, broad geographic prohibitions, and covenants applied to employees without meaningful access to confidential information or client relationships are routinely invalidated.
The recognized legitimate interests are narrow: trade secrets, confidential customer information, and specialized training the employer has invested in providing. Fear of competition alone is not enough. Courts will sometimes rewrite an overly broad agreement to enforce only reasonable terms, but they will not rescue a clause that is fundamentally unreasonable.
What's Pending: S4641
The New York Senate passed Senate Bill S4641 in June 2025, which would ban non-compete agreements for most workers. The bill exempts employees earning an average of $500,000 or more per year and agreements entered in connection with a business sale, but caps even those permitted non-competes at one year. The bill is now before the New York State Assembly, awaiting action from Governor Hochul, who vetoed a broader 2023 ban but has signaled openness to a more targeted restriction.
The bill would not apply retroactively. Agreements in place today would remain subject to current common law standards. But employers who enter into or modify non-competes after enactment would be subject to the new rules immediately.
Enforcement teeth are real: violations expose employers to up to $10,000 in liquidated damages per employee, lost compensation, and attorneys' fees. Choice-of-law clauses selecting another state's law will not allow employers to sidestep the bill if the employee works or resides in New York.
New Jersey: Same Framework, More Aggressive Pending Legislation
New Jersey currently enforces non-competes under the Solari test: the agreement must protect a legitimate business interest, be supported by adequate consideration, and impose restrictions reasonable in scope, geography, and duration. Courts demand proportionality. A restriction limited to the employee's actual territory and client base fares far better than an industry-wide prohibition. For existing employees asked to sign a non-compete mid-employment, continued employment alone is generally insufficient consideration.
What's Pending: S4385
On May 19, 2025, the New Jersey Legislature introduced Senate Bill S4385, which would ban and retroactively eliminate most non-compete agreements upon enactment. Unlike New York's bill, this one would void existing agreements immediately — not just future ones — and require employers to notify affected employees within 30 days.
The bill would also ban no-poach agreements between employers, including those embedded in franchise agreements, vendor contracts, and staffing arrangements, declaring them contrary to public policy and void. That is a meaningful expansion beyond what New York's bill contemplates.
Limited exceptions apply for senior executives in policy-making roles earning $151,164 or more, and for non-competes entered in connection with a bona fide business sale. Even qualifying executive non-competes may not exceed 12 months.
What Both Bills Preserve
Neither bill eliminates all post-employment restrictions. Both explicitly permit:
- Non-disclosure agreements covering trade secrets and proprietary client information
- Non-solicitation of clients (as distinct from a blanket prohibition on competitive employment)
- Agreements establishing fixed terms of service or exclusivity during employment
For most employers, a well-drafted NDA and client non-solicitation agreement will accomplish substantially the same protective goals as a non-compete — and will remain enforceable regardless of what happens legislatively.
One gap to watch: neither bill clearly addresses employee non-solicitation covenants. That ambiguity will produce litigation if either bill passes, and employers who rely on these provisions should monitor developments carefully.
What Employers Should Do Now
The legislative direction in both states is clear, even if the timing is not. Employers should take the following steps before enactment forces the issue:
- Audit existing non-compete agreements to identify which fall within pending exceptions and which do not.
- For employees in roles that genuinely warrant post-employment restrictions, assess whether a non-disclosure and client non-solicitation agreement would accomplish the same goal with significantly less legal exposure.
- Review the consideration supporting existing agreements, particularly any signed mid-employment without a corresponding benefit.
- For employers with employees in both states, be aware that New York's bill is prospective while New Jersey's is retroactive — the same agreement may be evaluated under different standards depending on governing law.
Employers who build a compliant post-enactment framework now will be far better positioned than those who wait for legislation to force the issue.
Disclaimer
This article is provided for informational purposes only and does not constitute legal advice. The information contained herein is general in nature and may not apply to your specific circumstances. Reading this article does not create an attorney-client relationship between you and Good Pine P.C.
Good Pine P.C. is licensed to practice law in New York and New Jersey. This article is intended for audiences in those jurisdictions. Laws vary by state and locality; consult a licensed attorney in your jurisdiction before taking any legal action.
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