New York Governor Rejects Ban on Noncompete Agreements

Employers that use certain noncompete agreements in New York state can continue to do so—for now. Gov. Kathy Hochul recently vetoed a bill that would have banned all noncompetes, but more proposals are expected.

As a result, “noncompetes are enforceable so long as they are reasonable in scope and they protect an employer’s legitimate interests,” said Shawn Clark, an attorney with Littler in New York City.

Similar noncompete bans exist in California, Minnesota, North Dakota and Oklahoma.

A noncompete clause prevents a worker from obtaining employment with a competitor, or starting their own competing business, for a certain amount of time after they leave an employer. Some noncompete clauses are limited to a certain geographic region.

Many employers use noncompete agreements to reduce turnover and prevent former employees from revealing trade secrets to competitors. Under the vetoed legislation, companies would still have been able to prohibit workers from disclosing trade secrets or proprietary client information, even without a noncompete.

If it had been approved, the legislation would have allowed employees to sue employers for imposing a noncompete agreement, and courts could levy damages up to $10,000. It would have applied to employees and independent contractors, regardless of their income level.

The governor vetoed the bill because she preferred to limit the ban to only apply to low-wage workers, Clark said. Some companies voluntarily use noncompete agreements with their highly paid executives, but not their low-wage workers.

“The bill was silent on the use of noncompetition agreements for the sale of a business,” another common practice, said Lawrence Pockers, an attorney with Duane Morris in Philadelphia.

Clark and Pockers both expect a similar ban on noncompetes to be reintroduced in the New York Legislature later this year.

“This bill is dead. The issue of banning noncompetes in New York is not dead, and we will see it again,” Clark said.

In 2024, the focus will be on where to draw the salary threshold to determine who is covered by the ban, Pockers said.

Clark and Pockers also predicted the trend of banning noncompete clauses will continue in more states.

“This is a fast-evolving area of the law,” Pockers said. “It’s getting more and more complicated,” especially with many remote workers not performing work in the same state that they report to.

In light of the state-level trend, HR professionals should review their company’s noncompete agreements and ensure that other provisions, like nondisclosure clauses and nonsolicitation clauses, are strong enough to protect the company’s interests, Clark said.

Employers also should consider expanding their use of garden leaves, in which departing employees continue to receive pay for a certain period of time but no longer perform work, Clark said. This could protect some sensitive business information.

FTC Action

In January 2023, the Federal Trade Commission (FTC) issued a proposed rule to ban noncompete agreements. The agency is expected to issue a final rule later this year. The federal regulation would supersede state laws.

“It’s possible that federal action may make moot anything that happens in New York,” Clark said. “We’ll have to wait and see what the FTC does.”

Pockers noted that the FTC’s final rule is likely to be subject to immediate legal challenge.