Non-competition agreements in employment have been subject to increasing restrictions in many states, including New York. In 2023, the New York legislature passed an almost complete ban on non-compete agreements, which would have had a significant impact on employers. On December 22, 2023, Governor Hochul vetoed the bill, stating that changes were needed to balance employee rights with the legitimate interests of businesses.
What Was in the Bill to Ban Non-Competition Agreements?
New York Senate Bill No. S3100A provided that employers could not require covered employees to accept a non-compete agreement that "prohibits or restricts such covered individuals from obtaining employment." Agreements entered into after the bill's effective date would be void. In addition, employees were given the right to sue an employer that violates the law. Employers could be liable for lost compensation, damages, and reasonable attorneys' fees and costs as well as liquidated damages of up to $10,000 for each violation.
The rationale of the bill was that non-competition agreements interfere with the ability of employees to change jobs and obtain better terms of employment, adversely affecting the labor market. The Federal Trade Commission is also considering banning non-competes.
Why Did the Governor Veto the Bill?
Business and industry groups objected to the bill, arguing to the Governor that there are circumstances where non-competes are necessary and should be allowed. Before receiving the bill, the Governor expressed her view that the bill should have exceptions for high-income earners to accommodate business interests and because high-income earners have more bargaining power. The bill did not have a carve-out for employees over an income limit.
The Governor has indicated support for a law banning non-competition agreements for low- and middle-income employees.
What Steps Should Employers Take?
Employers should stay abreast of New York law. The legislature may seek to amend the bill this year to address the Governor's concerns and seek passage of the law. In the meantime, please feel free to contact any of our attorneys if you have any questions about your non-competition agreements and whether they should be updated at this time.
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