New York Could Be the Latest State to Ban Noncompete Agreements | Mint

New York Could Be the Latest State to Ban Noncompete Agreements

New York Could Be the Latest State to Ban Noncompete Agreements
New York Could Be the Latest State to Ban Noncompete Agreements

Summary

Business group has launched a last-minute fight to stop or modify the bill.

ALBANY, N.Y.—A ban on noncompete agreements could soon be coming to New York—potentially with a carve-out for higher earners.

New York Gov. Kathy Hochul is considering whether to sign or veto a bill that would prohibit noncompete agreements, which typically prevent workers from taking a new job or starting a business for a period after leaving an employer.

The Democratic governor said last week that she would like to see a compensation cap for such a ban, floating $250,000 as a level above which noncompetes would be allowed. The bill as written would apply to virtually all workers regardless of compensation. Hochul has said she plans to act on most legislation by year’s end, but it is possible that a decision on the bill could stretch until early February, officials said.

If she signs the measure without a compensation limit, as the state legislature passed in June, New York will join four states, including California, with the most far-reaching bans in the country.

“One of my values and priorities is to protect low- and middle-income New Yorkers," Hochul said. “I’m not so worried about the very wealthy, well-taken-care-of Wall Street, hedge fund, top-paid lawyers. They can take care of themselves."

State Sen. Sean Ryan, the Buffalo Democrat who proposed the legislation, said a salary cap wouldn’t address all his concerns, including that startups are often unable to launch when prospective employees are bound to previous employers.

Noncompete agreements “depress wages, increase prices and are really bad for the entrepreneurial part of the economy," Ryan said.

He added that if the governor reopens negotiations on the bill, he would consider adding language to nullify pre-existing noncompete agreements—something pro-business groups had thus far successfully lobbied to keep out of the legislation.

According to the Federal Trade Commission, noncompete clauses affect nearly one in five American workers.

Originally associated with higher-paid executives and people with access to trade secrets or strategic plans, the clauses have been imposed in recent years on lower-wage workers such as hairdressers, baristas and security guards.

The Business Council of New York State, a lobbying group, has pushed forward amendments to the bill that would allow employers to keep noncompete clauses for employees who are compensated $200,000 or more.

Paul Zuber, the organization’s executive vice president, said that move would address bill sponsors’ concerns about low-wage workers who unwittingly sign noncompete clauses while protecting technology, legal and financial services firms who worry that executives could walk away with large rosters of clients.

Zuber said that companies would rather do business in states that legalize noncompete pacts, which some businesses argue protect trade secrets.

Kathryn Wylde, chief executive of the business group Partnership for New York City, whose members include major financial firms, said the bill that passed in June was “an unnecessary intervention with the employment contracts of high-earners."

Both sides have taken their fight to the airwaves in New York, which doesn’t typically see political-ad spending at this time of year. A nonprofit group affiliated with the Business Council launched a seven-figure ad campaign warning that enactment of the bill “would shatter our economy" by driving businesses to other states. Meanwhile, Stop Corporate Monopolies, a nonprofit group supporting the measure, said it launched a five-figure campaign on Albany-area stations urging Hochul to sign the bill.

Richard Tatum, a special-events lighting designer in Manhattan, was laid off during the 2008 financial crisis. He found work with another firm, but his former employer soon hit him with a lawsuit based on the noncompete clause he had signed more than a decade earlier.

“What was I supposed to do?" Tatum said. “Sell my apartment and move out of the tri-state region, or try to figure out a completely different profession that’s somehow unrelated to everything I know and do?"

Tatum, 59, spent a year and around $35,000 fighting the lawsuit. His former company dropped the case after a judge asked for evidence showing that Tatum’s new job had financially damaged the business, he said.

Paul Sonn of the National Employment Law Project, a worker-rights advocacy group, said he opposed a compensation cap in New York because white-collar workers who receive higher compensation can also be subjected to harassment.

“It often can lock workers into abusive job situations," he said.

The New York State Academy of Family Physicians, a trade group, said such clauses can push physicians to move completely out of a particular region, forcing patients to travel long distances or change healthcare providers. That group also urged Hochul to sign the legislation.

As Hochul considers the bill, the FTC is preparing to release a final rule that will likely put broad restrictions on employers’ use of noncompete agreements. The SEC is trying to ensure nondisclosure language isn’t used to deter whistleblowers.

Hochul said federal action would limit the possibility of businesses migrating between states to avoid unfavorable noncompete policies.

“I would rather see, overall, a national policy where we don’t have states playing off of each other," she said.

Write to Lauren Weber at Lauren.Weber@wsj.com and Jimmy Vielkind at jimmy.vielkind@wsj.com

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