New York state non-competes ban vetoed by governor

Background

The bill was passed by the New York State Legislature on June 20, 2023 and delivered to governor Kathy Hochul’s desk on December 12, 2023. If signed into law, the bill would have prohibited non-competes almost universally, with very limited exceptions, making New York one of the most restrictive states towards non-competes.

Press reports indicate that the governor and the New York legislature were negotiating the bill and exchanging amendments to reach a possible compromise up until the day of the veto. The governor sought to narrow the scope of the ban to individuals with annual salaries under $250,000, while the state senate sought an annual salary threshold of $300,000. The governor ultimately rejected the legislature’s final offer, which included a $250,000 salary threshold indexed to inflation and exemption of all medical workers. Other questions raised in the negotiations included whether any threshold would include other types of compensation, such as stock options or bonuses.

Explaining her veto, the governor reiterated her support for a non-compete ban for middle class and low-wage workers, but said that the bill’s “one-size-fits-all approach” is antithetical to the legitimate interests of companies in New York. While labor unions and worker advocates supported the bill, various organizations representing employer and business interests lobbied for the rejection of the bill due to talent retention and trade secret concerns. The bill’s sponsor promised to reintroduce the bill in 2024.

What this means

As a result of the veto, non-competes continue to be enforceable in New York as long as they are reasonable and protect a legitimate business interest.

What to expect

While the veto is favorable to employers, it is possible that a modified version of the bill will return in the next legislative session in 2024. The governor has stated she remains open to future legislation that “achieves the right balance,” so this may not be the last we hear on this topic.

Procedurally, the governor could introduce her own proposal as an attachment to the state executive budget, or the New York state legislature could attempt to override the veto, although veto overrides are rare in New York. To take effect, any revised bill would need to be once again considered and approved by both houses of the state legislature and be signed into law by the governor, a process that would take some time.

Employer considerations

• Employers with operations throughout the U.S. should be reminded that non-competes are still mostly unenforceable in certain states, including California, Minnesota, North Dakota, and Oklahoma, and are subject to restrictions in many others.
• Employers should expect the Federal Trade Commission (FTC) to vote on the proposed nation-wide ban on non-competes in 2024. The FTC originally issued this proposed rule in January 2023, which as drafted would ban the use of non-competes in most settings and retroactively require employers to rescind existing non-competes.
• Employers should stay alert to future developments on non-competes and seek legal counsel to ensure compliance in the changing landscape.
• Employers may wish to review their current non-competes and other restrictive covenants to consider their scope and applicability, particularly based on the employee’s seniority and pay level, in light of possible wage-based exemptions.

We are continuing to monitor updates on non-compete agreements. Please feel free to reach out with any questions or if you would like to know more about how new legislation relating to non-competes may affect your business.