New York Gov. Kathy Hochul in December vetoed a bill passed by the New York Legislature that would have prohibited nearly all noncompete agreements in the state regardless of the context, salary level or job function of the employee signing it. The ban would have applied equally to all employees and managers alike, regardless of rank or position.

In particular, the vetoed bill would have barred employers from imposing contract language that prohibits New York employees or other “covered individuals” from obtaining employment after leaving their current jobs. “Noncompete agreement” was defined in the bill as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment after the conclusion of the employment.” A “covered individual” was defined as any “person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.”

The law would not have been retroactive or nullified agreements entered prior to the effective date, but it would have prohibited new agreements, and the modification of existing agreements, going forward.

Hochul was the target of a lobbying effort by Wall Street and other powerful business industries aimed at allowing noncompetes to continue in contracts for employees earning more than $250,000 per year. Goldman Sachs, the Healthcare Association of New York and the New York City Bar Association were among the organizations reportedly involved in this campaign, lobbying records show. Prior to issuing her veto, Hochul indicated that the Legislature needed to revise the bill to balance the goal of protecting low- and middle-income workers from unreasonable restrictions while still allowing high earners to be subject to noncompetes given the increased negotiating power of their position.

A Year of Upheaval

As noted by my colleagues in earlier blog posts, Hochul’s veto comes after a year of upheaval in the noncompete space throughout the U.S. In January 2023, the Federal Trade Commission issued a proposed rule to ban all noncompete agreements with very limited exceptions. The National Labor Relations Board’s general counsel followed in May, issuing a memorandum declaring that most noncompete agreements violate employees’ rights under Section 7 of the National Labor Relations Act and are therefore unlawful.

Several states and localities also enacted or amended their own laws last year, limiting or outright banning the use of noncompete agreements. For example, California doubled down on its longstanding, statewide noncompete ban, creating a private right-of-action for aggrieved employees to sue employers that violate the law, and requiring employers to notify current and former employees in writing that any noncompete agreement or noncompete clause within an agreement signed by the employee is void.

What Employers Can Do

Despite Hochul’s veto, employers with New York employees subject to noncompetes should continue to monitor legislation in New York, as the state lawmakers will likely take up this effort again this session with similar or slightly modified terms. Presumably, any new effort to restrict employee noncompete agreements will consider the shortcomings of the vetoed bill and Hochul’s comments and focus primarily on middle-class and low-wage earners.

In the meantime, as more states review their existing noncompete laws, employers can proactively gather information about their use of noncompete agreements and note information such as employee name, position, work location and salary to help identify agreements that might be at risk. Employers should also begin considering alternative strategies to protect their confidential information, customers and employees in the event their non-compete agreements are nullified by a federal or state law in the future.

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