Since the start of 2022, several states have passed comprehensive non-compete laws. New York initially entered the fray in the summer of 2023, with the state legislature passing a ban on non-competes, but the legislation was dead by year’s end.
New York is a key state in the non-compete landscape due to its population, the prevalence of financial companies housed in the state, and its application of the employee choice doctrine. As a result, some companies prefer to use New York law for their non-compete agreements.
New York’s potential ban on non-compete agreements would have been seismic, making New York only the fifth state to ban non-compete clauses (joining California, North Dakota, Oklahoma, and Minnesota).
What Did the Bill Propose?
The initial bill defined a non-compete broadly as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” A “covered individual” generally included any sort of worker, whether employee or contractor, hourly or salaried.
Similar to other states, the bill did not cover certain types of agreements, including fixed-term agreements, non-disclosure agreements, and agreements that prohibit the solicitation of clients. The bill’s penalties included allowing a “covered employee” to file a lawsuit, and allowing the employee to recover lost compensation, damages, attorneys’ fees and costs, and mandatory liquidated damage penalties up to $10,000.
What remained unclear was whether the law applied to employee-choice agreements and agreements that prohibit the solicitation of employees. It also remained to be seen if New York’s governor would veto the legislation.
What Happened to the Bill?
Right before the end of the year, on December 22, 2023, New York Governor Kathy Hochul vetoed the legislature’s non-compete legislation. The governor wants the New York legislature to pass a bill that is similar to those of Illinois, Colorado, and Washington D.C., which allow non-compete clauses for individuals making more than a certain amount of money. The New York Times reported that the Governor and legislature were agreeable to ban non-compete agreements for all employees earning less than $250,000, but could not agree on how to handle bonuses and stock options for employees.
In her veto memo, Governor Hochul stated, “My top priority was to protect middle-class and low-wage earners, while allowing New York’s businesses to retain highly compensated talent. New York has highly competitive economic climate and is home to many different industries. These companies have legitimate interests that cannot be met with the Legislation’s one-size-fits-all approach.”
The New York legislature will likely pass a new version of the legislation this year and begin another round of negotiations with the governor. If they are able to agree on the terms of a bill, New York just might become the next state to ban non-competes.