BUSINESS LAW: BANNING NON-COMPETITION AGREEMENTS IN NEW YORK

October 4, 2023

By: Daniel J. Fetter, Esq.



A bill currently sits on Governor Hochul’s desk which would amend the New York Labor Law and ban nearly all non-competition agreements for workers in New York State.


What is a non-competition agreement?


An agreement (or clause contained in an agreement) between an employer and a “covered individual” that prohibits such covered individual from obtaining employment after the conclusion of the employment relationship with the employer.


Who is a “covered individual”?


Any person performing work or services for the employer. This would apply to both employees and independent contractors.


Does this law invalidate existing non-competition agreements?


No. The law will be effective 30-days after it is signed by governor Hochul and applies to non-competition agreements entered into or modified on or after such effective date


Is there an exception for sale of business?


There is no “sale of business” exception that would allow owners who sell their business to agree to refrain from competing with the buyer – common practice in the world of sales and acquisitions. Notably, the California law which bans non-compete agreements includes such an exception. Does the bill’s silence on this issue mean that a business owner in New York can sell his/her business and immediately start a competing company? Not exactly. Based on the definition of “covered individual” (who this bill is aimed to protect), it does not appear that the legislative intent was to protect business owners selling their business. It’s not difficult to believe that this will be the subject of future litigation.


Are non-disclosure and non-solicitation agreements also banned?


The bill carves out exceptions for non-disclosure agreements that prohibit disclosure of trade secrets or confidential and proprietary client information, as well non-solicitation agreements with respect to clients of the employer that the covered individual learned about during his/her employment, provided that such agreements do not otherwise restrict competition.


What remedies are available to employees?


A worker subject to a non-competition agreement can bring a private cause of action against the employer. Such action must be brought within two (2) years of the later of: (1) when the non-competition agreement was signed; (2) when the covered individual learns of the non-compete agreement; (3) when the employment or contractual relationship is terminated; or (4) when the employer takes steps to enforce the non-compete agreement.


The court can void the non-compete agreement and order all appropriate relief, including enjoining the conduct of the employer; ordering payment of liquidated damages (not more than $10,000) and awarding lost compensation, damages, reasonable attorneys’ fees and costs.


For further information, reach out to your usual firm contact or contact the firm at (315) 471-8111.


This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

Important Notice for New York State LLCs: Addressing the 30-Year Limit Expiration

August 8, 2024
By: Nicholas J. Graham, Esq. Limited Liability Companies ("LLC") have been authorized in New York since 1994. When the law was first enacted, an LLC could not have perpetual existence like corporations. This limitation was removed in 1997. If your LLC was established under the old New York State law that imposed a 30-year lifespan, it's crucial to be aware of the approaching expiration of your company's duration. Originally, LLCs in New York were required to specify a limited duration, commonly set at 30 years. Many of these companies are now reaching the end of this period and must take action to continue operating. Special attention should be given to LLC's formed between 1994 and 1997, as they were likely established with a 30-year lifespan. What Has Changed? The law in New York has evolved, and LLCs are no longer bound by the 30-year limit. Pursuant to NY LLC law §701(1), businesses now have the option to exist perpetually, providing greater flexibility and stability for long-term planning. However, this change is not automatic for existing LLCs that were originally set up with a 30-year term. What You Need to Do To ensure your LLC can continue its operations beyond the original 30-year term, you need to file an amended Articles of Organization with the New York Department of State. This amendment should update the duration of your LLC to perpetual, or to another term if desired. Steps to Amend Your Articles of Organization: Prepare the Amendment: Draft an amendment to your LLC's Articles of Organization. This document should clearly state the new duration of the LLC, typically set to "perpetual." File the Amendment: Submit the amended Articles of Organization to the New York Department of State. This can usually be done online or by mail. Ensure that you include the necessary filing fee. Update Internal Documents: Reflect the change in your LLC's operating agreement and any other internal documents to ensure consistency and compliance. Notify Members and Stakeholders: Inform all members and relevant stakeholders of the change to ensure everyone is aware of the updated status of the LLC. Why It Matters Failing to update your LLC’s duration could result in the automatic dissolution of the company once the original 30-year term expires. This could lead to significant disruptions in business operations and potential legal complications. By taking proactive steps to amend your Articles of Organization, you can ensure the continuity of your LLC and take advantage of the flexibility offered by the current laws. Need Assistance? The Scolaro Law Firm specializes in helping businesses navigate changes in regulatory requirements. If you need assistance with amending your Articles of Organization or have any questions regarding your LLC's status, please contact us. Our experienced team is here to provide the guidance and support you need to keep your business running smoothly. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

SMB M&A SERIES: Financing Business Acquisitions with SBA 7(a) and 504 Loans

July 23, 2024
By: Nicholas J. Graham, Esq. The SMB M&A series provides insights into buying and selling a small business. For business buyers looking to acquire a small business, securing the right financing is often a critical step. The U.S. Small Business Administration (SBA) offers two popular loan programs that can be invaluable in this process: the 7(a) loan and the 504 loan. These loans are available through local lenders and are partially guaranteed by the SBA, reducing the risk for lenders and making it easier for small businesses and entrepreneurs to obtain financing. Both programs provide favorable terms that can make acquiring a business more achievable. Here’s a closer look at how each can be used, with a particular focus on the flexibility of the 7(a) loan, as it is more commonly used for business acquisitions. The SBA 7(a) Loan Program The 7(a) loan program is the SBA’s most popular and flexible loan option. It is designed to help small businesses and entrepreneurs obtain financing when they might not be eligible for traditional financing options. Here are the key advantages and uses of the 7(a) loan for business acquisitions: 1. Broad Eligibility and Use of Funds: The 7(a) loan can be used for a variety of purposes, including purchasing a business which can include goodwill, buying out partners, acquiring real estate, and refinancing existing debt. This flexibility makes it an ideal choice for business acquisitions where the buyer may need to cover multiple types of expenses. 2. Favorable Terms and Conditions: 7(a) loans offer competitive interest rates, long repayment terms (up to 10 years for business acquisitions), and lower down payment requirements compared to conventional loans. These favorable terms can ease the financial burden on buyers and improve cash flow during the critical early stages of ownership. 3. Working Capital Inclusion: One significant advantage of the 7(a) loan is the ability to include working capital in the loan amount. This can provide new business owners with the necessary liquidity to manage day-to-day operations, especially important during the transition period post-acquisition. 4. Collateral Flexibility: While the SBA prefers loans to be fully collateralized, a 7(a) loan can still be approved even if sufficient collateral is not available. This can be a major benefit for buyers who have limited assets to pledge. The SBA 504 Loan Program The 504 loan program is another powerful financing tool, primarily focused on fixed assets such as real estate and equipment. It involves a partnership between the SBA, a Certified Development Company (“CDC”), and a private lender. Here’s how it works for business acquisitions: 1. Structured Financing: A 504 loan typically consists of three parts: a loan from a private sector lender covering 50% of the project cost, a loan from a CDC covering up to 40%, and a 10% down payment from the borrower. This structure can reduce the amount of equity the buyer needs to provide upfront. 2. Long-Term Fixed Rates: The 504 loan offers long-term fixed interest rates, which can provide stability and predictability for business owners. This is particularly beneficial when acquiring property as part of the business purchase. 3. Real Estate and Equipment Focus: While the 504 loan is less flexible than the 7(a) loan in terms of eligible uses, it is ideal for acquisitions that involve significant real estate or heavy equipment investments. The ability to finance these assets over a long term with a fixed rate can be a strategic advantage. Conclusion Navigating the complexities of financing a business acquisition can be challenging, but SBA loans offer valuable tools to help buyers achieve their goals. The 7(a) loan’s flexibility and broad eligibility make it a particularly attractive option, while the 504 loan’s fixed-rate, long-term structure provides stability for significant asset purchases. However, to truly capitalize on these advantages, it's essential to structure the transaction properly and adhere to all eligibility criteria and regulatory requirements. With careful planning and compliance, SBA loans can provide the financial support needed to successfully acquire and grow a business. If you’re considering buying a business and exploring SBA loan options, our experienced M&A team at Scolaro Fetter Grizanti & McGough, P.C. is here to help. Our team handles small business M&A transactions throughout New York State, Vermont, Pennsylvania and Florida. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.
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