New York might ban non-compete agreements for all but the highest earners, Governor Kathy Hokul has said. The bill as it exists now would apply to everyone regardless of compensation, but Hokul said it might contain a carveout for earners making $250,000 a year or more.

These agreements typically act to prevent workers from taking a job or starting a business for a certain period after leaving an employer so as to compete against the employer.

State Senator Sean Ryan (D-Buffalo) said that noncompete agreements “depress wages, increase prices, and are really bad for the entrepreneurial part of the economy”. He would like to add language to the bill so pre-existing noncompete agreements would also be nullified, something the pro-business lobbying groups had at least been able to keep out of the legislation.

NY law on non-competes

Under New York law, a non-compete is only allowed and enforceable to the extent it:

• is necessary to protect the employer’s legitimate interests;
• does not impose an undue hardship on the employee;
• does not harm the public; and
• is reasonable in time period and geographic scope.

An employer’s legitimate interest may include protecting an employer’s trade secrets and confidential information and preventing employees from taking specialized skills they gained on the job to a competitor. A non-compete’s restrictions must be no greater than necessary to protect the
legitimate interests of the employer.

Many other states, recognizing the effects of non-competes on workers, especially lower-wage workers, enacted legislation restricting non-competes in recent years.

New York has charged a number of companies for their overly broad noncompete agreements. In September 2018, the New York Attorney General (NYAG) said office-sharing company WeWork was using non-compete agreements that prohibited all employees from working for competitors after leaving the company, regardless of job duties, knowledge of confidential information, or compensation.

The agreement not only applied to executive and senior staff, but also broadly to all levels of employees, at nearly all locations nationwide as a condition of employment.

The 1,400 employees fully released from their non-compete agreements by the NYAG’s order include cleaners, mail associates, executive assistants, baristas, and more, some of whom were being paid $15 an hour.

Minnesota, California and other states

This year, Minnesota, California, Oklahoma, and North Dakota are similarly poised to ban noncompete provisions. Maryland and Kentucky enacted legislation this year, adding restrictions on employers imposing non-competes.

And many other states, recognizing the effects of non-competes on workers, especially lower-wage workers, enacted legislation restricting non-competes in recent years, including Washington State, Rhode Island, Maine, Massachusetts, Maryland, Oregon, Virginia, Indiana, Washington, D.C., Nevada, Colorado, Iowa, Kentucky, and Illinois.

Non-competes and the FTC

In January, the Federal Trade Commission proposed a new rule that would ban employers from imposing non-competes on their workers. The agency estimated that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.

The proposed rule is based on the concept that non-compete agreements constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.