Wall Street wins bid to keep non-compete clauses in New York

GOVERNOR Kathy Hochul will veto a bill to ban employee non-competes in New York, after facing intense pressure from Wall Street, hospitals and business groups that opposed the measure, according to sources familiar with the matter.

The legislation rejected by Hochul on Friday (Dec 22) would have barred employers from imposing contract language that prohibits employees or other “covered individuals” from obtaining employment after leaving their current jobs.

New York would have become the second most populous state to ban these clauses, joining California, which has had the restriction in place for more than a century. Supporters of the proposal said it would spur innovation and help New York compete with California for talent and new startups, particularly in the tech sector.

State lawmakers passed the New York measure in June alongside a broader movement to restrict or ban non-competes, including proposals and enforcement actions from both the Federal Trade Commission and the National Labor Relations Board. The ultimate outcome of those federal efforts is uncertain, due in part to litigation from business groups challenging the agencies’ authority to regulate employment contracts.

Hochul was the target of a lobbying effort in recent months aimed at allowing non-competes to continue in contracts for employees earning more than US$250,000 per year. JPMorgan Chase, Goldman Sachs, Healthcare Association of New York, and the New York City Bar Association reported pressuring her office, lobbying records show.

The governor told reporters in late November that she supported scaling back the legislation in line with the business groups’ request though a deal with state lawmakers did not ultimately happen.

Minnesota this year enacted an outright ban on employee non-competes, effective Jul 1, the first state to do so in decades.

North Dakota and Oklahoma, along with California, have long deemed non-competes unenforceable, with only narrow exceptions. At least 11 more states plus the District of Columbia restrict non-competes under limited circumstances, blocking employers from imposing them on low to middle-income or hourly workers.

Non-competes contractually block workers from leaving their employer to go to work for a competing company or start their own competing business. Estimates differ on how widely they’re used, with the Treasury Department citing data showing about 20 per cent of US workers are currently restrained by non-competes, while 2023 Minneapolis Fed data put the figure at 11 per cent.

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Worker advocates, labour unions and other supporters of banning the contracts say they unfairly restrict workers’ job mobility, often restraining low-wage workers who don’t have access to company secrets. Industry groups such as the Business Council of New York State oppose broad restrictions on non-competes, arguing that companies generally use them for legitimate reasons and that courts already set limits on when and how the contracts can be enforced.

The New York measure would have allowed employers to continue using non-disclosure agreements aimed at protecting trade secrets and non-solicitation agreements that prohibit an employee from leaving the company and recruiting away customers for a competing business – as long as an agreement “does not otherwise restrict competition in violation of this section”. BLOOMBERG