As momentum for regulation of non-competes grows at the federal level, states continue to pass restrictive non-compete legislation on their own.
As previously reported
, on January 5, 2023 the Federal Trade Commission (“FTC”) proposed a new rule which would effectively ban all non-compete agreements between employers and other workers—not only prohibiting new non-competes, but invalidating existing ones. After receiving almost 27,000 comments during an extended comment period, the FTC voted to delay a vote on the proposed rule until April 2024. Given the vehement opposition to the proposed rule by certain industry groups, even should the FTC move forward with a rule, most expect immediate legal challenges and therefore further delays.
Following the FTC’s proposed rule, the U.S. Congress again entered the fray by reintroducing legislation, titled the “Workforce Mobility Act of 2023,” previously introduced in 2019 and 2021 that would ban non-competes prospectively for all workers except in limited “sale of a business” or partnership circumstances. Such bills went nowhere in its prior iterations and there is little sign of it being any different in this legislative session.
More recently, the General Counsel for the National Labor Relations Board (“NLRB”) has also put a stake in the ground: on June 5, 2023, GC Jennifer Abruzzo issued Memorandum GC-23-08 (the “Memo”), which asserts that most non-competes unlawfully restrain Section 7 rights and violate the National Labor Relations Act except in limited “special circumstances.” The extent of the “special circumstances” was left for some interpretation. While not binding law, the Memo indicates that the NLRB will be prioritizing non-competes in their investigations.
Meanwhile, additional states have taken action to alter the non-compete landscape in their jurisdictions. Many states have passed legislation in the past few years that limit non-competes for lower wage earners or impose strict requirements on permissible non-competes—including Colorado (with income thresholds for both non-compete and non-solicitation provisions), the District of Columbia, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, Virginia, and Washington.
Meanwhile, Minnesota recently passed a near-total ban, and New York appears poised to do the same.
On May 24, 2023, Minnesota Governor Walz signed a bill into law which voids all post-employment non-compete agreements with employees and independent contractors entered into after the effective date of July 1, 2023, with only limited exceptions related to the sale or dissolution of a business. Non-solicitation, non-interference, and non-disclosure/confidentiality agreements remain permissible.
On June 7, 2023, the New York State Senate passed Bill No. S3100A, which would ban all post-employment non-competes if signed by Governor Kathy Hochul as expected. Bill No. S3100A would apply prospectively to any worker and contains a liquidated damages provision whereby any employer found to be in violation would be subject to damages of up to $10,000 (plus lost compensation, damages, and attorney’s fees and costs). The bill excludes non-disclosure/confidentiality agreements and customer non-solicitation agreements (provided they do not act as de facto non-competes), but does not expressly exclude non-competes as part of the sale of a business, nor does it address forfeiture-for-competition clauses (which have been found to violate California’s non-compete ban). If signed by the Governor, it would become effective 30 days later.
With these bills, Minnesota became the fourth state to outright ban non-competes (following California, North Dakota, and Oklahoma), and New York would be the fifth.
Nutter will continue to monitor this pending legislation, as well as other bills that have been introduced in 2023.