In June 2023, both houses of the New York State legislature passed a bill to prohibit non-compete agreements. However, on December 7, Governor Hochul vetoed the legislation after negotiations to narrow the bill’s scope broke down.
As drafted by the legislature, the bill created a blanket ban on new non-compete agreements for employees of all income levels, with only extremely limited exceptions.
Wall Street firms, business groups, the New York City Bar Association, and others lobbied against the bill, trying to stop it from passing altogether or at least keep it from applying to employees who made more than $250,000 per year. The governor indicated she was in favor of this limitation, but the bill’s sponsor did not agree on the details of whether the salary cap included benefits and bonuses.
Although they were not able to reach a compromise this time, state lawmakers have said they would try again with similar legislation, and the governor appears ready to approve a more limited form of the ban.
National Movement Against Non-Compete Agreements for Low-Wage Workers
There’s a national trend against non-compete agreements, especially for low-wage workers.
In 2018, the attorney general of Washington State filed a lawsuit against the national sandwich chain Jersey Mike’s for its no-poach clauses. These provisions prohibit employees from moving between different franchise locations of the chain, which keeps wages down for low-paid sandwich makers.
Jersey Mike’s settled for $150,000 and agreed to stop enforcing the clauses. A similar multistate effort, led by Massachusetts and including the New York State AG, obtained settlements from Burger King, Popeyes, Tim Hortons, and other restaurant chains to stop using no-poach agreements.
About 50% of states, including California, Minnesota, Oklahoma, and North Dakota, already have strong bans against non-compete agreements. Meanwhile, the FTC proposed a new rule that would create a broad nationwide ban against non-competes not only for employees but also for independent contractors. And, unlike the recently vetoed New York bill, the FTC’s rule would be retroactive, voiding all existing non-competes. The FTC will decide soon, in April 2024, whether to implement the rule.
Current Landscape of Non-Competes in New York State
According to Attorney General James, non-competes are only allowed and enforceable in New York if they are necessary to protect an employer’s legitimate interests, do not impose undue hardships on employees, do not harm the public, and are reasonable in time and geographic scope.
Governor Hochul’s Stance
In a statement accompanying her veto, Governor Hochul wrote, “I have long supported limits on non-compete agreements for middle-class and low-wage workers,” and that she had, in the past, proposed banning them for anyone making less than New York’s median wage. She also acknowledged that companies have “legitimate interests that cannot be met with the Legislation’s one-size-fits-all approach.”
She remains committed to finding a solution that would “recognize the urgent need” to restrict non-competes for middle- and low-income workers and stated she is “open to future legislation that achieves the right balance.”
The Future of Non-Compete Legislation in New York
The State Senate sponsor of the vetoed non-compete bill said that he would be introducing a new bill. Given Governor Hochul’s statement, the Democratic supermajority in both houses of the State Legislature, and how close the governor and legislature apparently were to reaching an agreement, it seems likely that a ban on non-competes will pass, if not for all workers, than for those up to a yet-to-be-determined threshold income level.
Implications for Employers
Non-compete clauses are one way to protect an employer’s confidential information and trade secrets. Since it appears there’s a good chance that some form of a law banning non-competes will be implemented in New York State in the not-too-distant future – and possibly nationally as well if the FTC rule passes – employers should get ready now. They need to look into alternative methods for protecting their intellectual property and confidential information, including:
- Non-solicitation agreements (protecting customer lists)
- Trademark registrations
- Patents
- Copyright registrations
- Well-drafted confidentiality and trade secret agreements
- Other adequate protection measures for confidential information and trade secrets
Alternatives to Non-Compete Agreements
Non-solicitation agreements provide an alternative way to protect a company’s clients and workforce. These agreements, which were permitted under the proposed legislation, are less restrictive than non-competes. However, it’s important to carefully craft these agreements to ensure that they are both effective and enforceable in New York.
Employers should also consider having employees sign non-solicitation, confidentiality and nondisclosure agreements, implementing applicable policies and training, and restricting employees’ ability to take documents with them via email or external devices.
What’s Next?
In New York, the attorney general, governor, and legislature have all worked in some form towards limiting the enforceability of non-compete agreements for low- and middle-income workers. Legislation banning new non-compete agreements for workers who earn less than a specified threshold, possibly $250,000, has a good chance of passing. Given these likely changes, New York employers should start considering alternatives to non-compete agreements that will protect their trade secrets and confidential information.
The FTC may also be implementing a non-compete rule in the near future that will apply nationally and could be even stronger than what the New York legislature will propose. The situation is very much in flux, and employers everywhere in the country should take note.