New York state legislators fast-tracked a bill to Gov. Kathy Hochul’s desk last week that aims to ban noncompete agreements, putting the state in line not only to prohibit the contentious contracts, but be the state with the broadest ban yet and the spark to fuel momentum for passing similar bills in other states.
Yet it comes as a bit of a surprise: With no public hearings, “this legislation came as a bolt out of the blue,” says John Siegal, partner at business law firm BakerHostetler and co-leader of the firm’s noncompete and trade secrets practice. If Gov. Hochul signs the bill, the labor contracts used to prevent employees from leaving a company and working for a competitor, or starting their own, would be banned in the state of New York.
The move follows the buzz of the U.S. Federal Trade Commission’s proposal earlier this year to ban noncompetes at the national level. The FTC estimates a national prohibition would impact about one in five workers, or 30 million Americans, and increase wages by nearly $300 billion per year. A vote is expected next year.
New York would be the fifth state with a blanket ban on noncompetes. Since the FTC’s January proposal, Minnesota joined the growing list of states with bans and restrictions on noncompete agreements with a law that will take effect July 1. Three states—California, North Dakota and Oklahoma—have had bans in place since the 19th century; other states, including Colorado, Illinois and Maryland, have passed laws in recent years that limit noncompetes for higher wage earners.
Experts predict more states could follow. New York “is a big domino to fall,” says Caleb Tuten, a senior manager of ESG engagement at Veeva Systems, a software company that has been vocal about its stance against noncompetes and has advocated for bans.
“Whenever a very large, economically important state like New York chooses to act, you can expect that there are going to be ripple effects for other states [that] are engaged in the same competition for talent,” says John Lettieri, cofounder and CEO of the Economic Innovation Group (EIG), a bipartisan public policy organization that is a big advocate for noncompete bans. EIG helped pass New York’s bill by submitting testimony.
Tuten and Lettieri say the momentum of bans in recent years is a result of recent research reports, like the ones the FTC cited in its own proposal ban, that conclude noncompete agreements restrict employees’ mobility, hurt wages and harm competition.
Lawyers who represent both employee plaintiffs and corporate management say the new bill is somewhat problematic due to its overly broad language, which leaves open questions about whether prior agreements would be voided, whether garden leave would be permissible (when companies pay exiting employees not to work for a certain period) and if the ban would apply to other contracts, such as non-solicitation agreements.
“New York state just hasn’t put any thought into this,” says Peter Glennon, an employment litigation attorney whose clients are mostly individual professionals. “They got caught up in the hype of the political movement.”
BakerHostetler’s Siegal, meanwhile, says “we in New York always like to think of ourselves as ahead.” However, “this is a very blunt instrument that really cuts across [all New York employees] and doesn’t fully consider a lot of the issues that other states have dealt with in a more considered, nuanced way.”
New York’s bill does not outline any salary limitations, meaning the bill would presumably apply to all workers. If approved, the law will take effect 30 days after it is signed. However, “there’s still questions about whether it will be signed by the governor of New York,” Glennon says.
Still, momentum could pick up elsewhere, experts say. “I’m viewing this as part of these current social times,” Glennon says. “The anti-noncompete movement has been starting to sweep the nation.”
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