TAKEAWAYS
- On December 23, 2023, Gov. Kathy Hochul vetoed the New York State Legislature’s proposed ban on all new non-compete agreements.
- Despite the veto, Governor Hochul has left open the possibility of a statewide restriction on non-compete agreements for lower-wage workers.
- Meanwhile, 2024 promises to be yet another year of increased legislation on the non-compete front, both from the Biden Administration and state legislatures.
On December 23, 2023, New York Governor Kathy Hochul vetoed a bill that would have imposed a broad ban on non-compete agreements in New York. The legislation proposed a sweeping and aggressive prohibition of new non-compete agreements with employees and other workers and service providers, without any exceptions for highly compensated employees, for partners leaving a partnership or even for non-competes entered into in the sale of a business context.
The story does not end here, however. In her memorandum vetoing the bill, Gov. Hochul made clear that she would support a non-compete ban in New York so long as it strikes “the right balance” between “protect[ing] middle-class and low-wage earners, while allowing New York’s businesses to retain highly compensated talent.” It is quite possible, therefore, that a more narrowly tailored non-compete ban is on the horizon in New York.
In addition to continuing to monitor New York legislation, New York employers should be mindful of regulatory activity at the federal level.
The U.S. Federal Trade Commission (FTC) is expected to vote in April 2024 on the final version of its proposed nationwide ban on non-compete agreements. The FTC first introduced its proposed rule in January 2023, which, if adopted, would prospectively and retroactively ban employee non-compete agreements. Unsurprisingly, the FTC’s proposal has faced tremendous pushback—and an impressive 27,000 public comments. It is therefore anticipated that the final version will be narrower than the proposed version.
New York employers with employees outside of New York must also ensure compliance with the increasingly varied statutory restrictions on non-competes across the country. California, Minnesota, North Dakota and Oklahoma, for example, each have general prohibitions on non-competes. (California and North Dakota also generally prohibit customer non-solicit agreements, while Oklahoma only permits non-solicits for an employee’s established customers.)
An increasing number of states prohibit by statute non-competes unless the employee is exempt or earns more than a statutory minimum salary. These states include Colorado, Illinois, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, Washington and Virginia, as well as the District of Columbia. Some of these statutory minimum salaries are actually relatively high. For example, as of this date, employees must make at least $150,000 to have a non-compete in the District of Columbia, $123,750 in Colorado and $120,559.99 in Washington.
Next Steps for Employers
Employers are well advised to work with their employment counsel to ensure that their current restrictive covenant agreements comply with all applicable state laws and to monitor new developments. In addition, employers should work with employment and intellectual property counsel to ensure that any existing agreements independently offer sufficiently robust protection of their confidential, proprietary and trade secret information.
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