New York Governor Vetoes Non-Compete Ban

On December 22, 2023, New York Governor Kathy Hochul vetoed a bill (A01278) that would have resulted in New York joining a small group of states with outright bans on non-competes (i.e., California, Colorado, Minnesota, North Dakota and Oklahoma).

The bill, passed by the New York State Legislature in June 2023, would have prohibited most new non-compete agreements between employers and employees (and other service providers) in New York State. Governor Hochul told reporters on November 30, 2023, that she was eager to strike “the right balance between protecting low- and middle-income workers, giving them flexibility to have mobility to go from job to job as they continue up the ladder of success.”

Despite significant negotiation efforts to narrow the non-compete restriction to individuals earning more than $300,000 per year, Governor Hochul concluded that “the Legislation’s one-size-fits-all approach” was unworkable for New York’s “highly competitive economic climate” which is “home to many different industries.”

What’s next in New York?

It is still possible that the New York Legislature will come back in 2024 with new legislation that would prohibit non-competes for certain employees and compensation levels, but for now non-competes remain valid in New York State. These non-competes, however, will continue to face judicial scrutiny to ensure they are reasonable in terms of scope, duration, and geographical limitation.

U.S. Federal Trade Commission’s Focus on Non-Competes

In early 2023, the U.S. Federal Trade Commission (“FTC”) published a proposal to ban non-competes entirely, one month after the U.K. government announced plans to limit the length of non-competes in the U.K. As currently drafted, the FTC rule would apply retroactively and ban the use of non-competes across the U.S. in almost all circumstances. The proposed rule seeks to set aside extensive case law and existing state law standards that support the enforcement of non-compete clauses that are determined to be reasonable. The FTC’s proposed rule has garnered 27,000 comments. Banning non-competes is reported to impact over 30 million Americans. The FTC is expected to vote on the final version of its proposed nationwide ban on non-competes by mid-2024.

Any rule will likely be the subject of multiple legal challenges on whether the FTC has the authority to adopt a national ban on non-competes that supersedes any state statute, regulation order or interpretation. Potential legal challenges to the rule include the following: (1) the FTC lacks authority to engage in “unfair methods of competition” rulemaking based on the history of, and ambiguity in, the FTC Act, (2) the rule is barred by the “major questions doctrine” which requires Congress to speak clearly when authorizing agency action on an issue of national significance, and (3) even if the FTC has the authority to engage in this rulemaking, it is an impermissible delegation of legislative authority under the non-delegation doctrine, which prevents Congress from delegating legislative authority to executive branch agencies.

We are continuing to monitor updates on non-compete agreements both in the U.S. and across the globe. If you would like to speak to one of the team about restrictive covenants in your jurisdiction, please get in touch.