Another try expected to ban noncompete clauses after Hochul’s veto

The Business Journal has learned from a source in Albany that legislation is expected to be offered soon in the state Senate and Assembly that would take another stab at banning the use of noncompete clauses in employment contracts in New York state.

According to the Federal Trade Commission (FTC), about one in five American workers, approximately 30 million people, are bound by a noncompete clause that restricts what they can do in the way of employment after their current employment ends. The FTC in January 2023 proposed a federal rule that would ban noncompetes and was expected to vote on whether to adopt the rule in April of 2024.

Gov. Kathy Hochul on Dec. 22 vetoed legislation that had been passed by the State Legislature that would have prevented noncompete clauses from being included in new employment contracts. It would have allowed employment contracts to continue to have nondisclosure clauses, designed to help businesses prevent confidential information from being disclosed by an employee who quits or is fired.

Hochul said that she would be amenable to New York state having a ban on noncompete clauses for workers earning at least $250,000 a year, but contended that imposing a blanket ban would hurt lower-income workers.

“I attempted to work with the Legislature in good faith on a reasonable compromise,” Hochul said in her veto message. “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 a highly competitive economic climate and is home to many different industries. These companies have legitimate interests that cannot be met with the Legislature’s one-size-fits-all approach.”

Hochul said that she has long supported limits on noncompete agreements for middle-class and low-wage workers. She said that noncompetes generally prevent workers from taking a new job or starting a new business.

Democrat State Sen. Sean Ryan of Buffalo, who proposed the Senate version of the noncompete legislation that Hochul vetoed, pointed out that his side had put forward a compromise proposal that Hochul rejected. It would have ended the use of noncompetes for workers with a base salary under $250,000, indexed that amount to inflation, and banned noncompetes for health care workers.

“Our state loses jobs every year because we continue to allow employers to subject workers to noncompete agreements,” Ryan said. “There is a growing movement to ban noncompetes, and New York has missed out on a major opportunity to boost job growth, wages, and economic security for millions of workers.”