As businesses awaited word near the end of the year, New York Governor Kathy Hochul vetoed a bill on December 22, 2023, that would have categorically banned employee non-compete agreements in New York.

Ban on Non-Compete Agreements Vetoed by Governor Hochul

The Governor primarily took issue with the bill’s broad application to all private-sector employees, as it did not take into account employee salaries or hourly earnings. Critically, Governor Hochul stated that that she did not oppose a prohibition on non-competes for middle- and low-income workers. To that end, her veto was rooted in the bill’s “one-size-fits-all” approach. That approach would have substantially damaged employers’ abilities to retain key organizational leaders and prevent their defection to competitor businesses. Many businesses throughout the state rely on non-compete agreements to secure long-term commitments from key executives and other leaders.

Business trade groups lobbied heavily against the bill, while labor organizations and allied groups argued for its passage.

Similar Measure Expected in 2024

The veto however does not mark the end of the issue. The bill’s Legislative sponsor, State Senator Sean Ryan, quickly announced that the measure will be taken up by the Legislature again in 2024. Efforts at passing a similar measure in 2024 will likely focus on an income-exemption level, where employees earning more than a certain amount could still be subject to non-competes, while those earning less could not.

Setting that level will necessarily require review of several other factors, such as the discrepancy in average salary levels regionally. Lawmakers will also need to consider what form of compensation will factor into the threshold—i.e., whether salary alone will be sufficient, or, whether payments such as bonuses and commissions may count towards it. And, if such a measure passes in 2024, businesses and executives may have to re-evaluate compensation structures to take into account non-compete enforceability.

Federal Efforts Remain in Play

Many will remember that New York is not alone in its push for a ban on employee non-compete agreements. An initiative at the federal level, via the Federal Trade Commission (“FTC”) is still in process. Initially announced in 2023, the FTC’s proposed rule on banning non-competes is expected to be voted on in April 2024, with publication of a finalized rule midway through the year. And beyond the FTC, the General Counsel for the National Labor Relations Board (“NLRB”) issued a guidance memorandum last year asserting that many non-compete agreements violate federal labor law protections and could “chill” an employee’s ability to engage in protected activity.

Next Steps

Employers should watch for further developments and review their current non-competes for compliance with any changes.