Dive Brief:
- Both New York Gov. Kathy Hochul and key state lawmakers have expressed a desire to ban noncompete agreements for low- and middle-income workers, but have yet to reach agreement on how any such restrictions should be applied to higher-income professionals.
- As a result, Hochul announced late last year that she was vetoing legislation that would have banned virtually all noncompetes in New York state. In Hochul’s veto message, the Democratic governor said “companies have legitimate interests that cannot be met with the Legislation's one-size-fits-all approach.”
- The state senator who sponsored the legislation has indicated he plans to reintroduce the legislation next year. Hochul also wrote in her veto message that she continues “to recognize the urgent need to restrict non-compete agreements for middle-class and low-wage workers” and is “open to future legislation that achieves the right balance.”
Dive Insight:
New York State’s debate about noncompetes comes amid a pending Federal Trade Commission proposal to ban that type of employment agreement nationally, as critics argue the contracts limit the mobility of workers.
Other states have also taken action in recent years to prohibit or restrict noncompetes, including Minnesota.
If signed into law, the bill the New York Legislature passed last year “would have been one of the most restrictive pieces of legislation governing non-compete agreements in the country,” according to a blog post by lawyers at Mintz.
For example, the legislation contained no explicit exceptions for noncompete agreements that arise from the sale of a business, lawyers at both Mintz and Jackson Lewis noted.
The Jackson Lewis attorneys said the bill also did not provide carve-outs for agreements or clauses calling for the forfeiture of incentive compensation of any type if an employee leaves to go to a competitor.
“Many New York employers utilize these types of plans, which currently are enforceable under the New York “employee choice doctrine,” the Jackson Lewis lawyers wrote in a blog post.
Lawyers at Proskauer Rose were among those who highlighted that Hochul’s veto “does not necessarily signal the end for non-compete legislation in New York.”
The Proskauer attorneys wrote in a blog post that not only do Democrats have firm control of the state Legislature, but the governor could also introduce her own proposal that would be attached to the state budget.
In her veto message, Hochul highlighted that in her first executive budget she proposed banning noncompete agreements for anyone making below the median wage in New York.
As the governor and lawmakers work to bridge their areas of disagreement, New York employers can continue to require employees to sign noncompetes as a condition of employment, according to attorneys at Crowell & Moring.
“Non-compete agreements that are overly broad, however, may be deemed unenforceable by courts under New York law,” the Crowell lawyers wrote in a blog post. “Therefore, employers covered by New York law should continue to ensure that their non-compete agreements satisfy New York’s applicable requirements, such as extending only to the extent necessary to protect legitimate business interests, reflecting restrictions that are reasonable in time, geographic reach and otherwise, not being unreasonably burdensome to the employee, and avoiding harm to the general public.”
