CSG Law Alert: New York Governor Vetoes State Legislation Banning Non-Compete Agreements

On July 10, 2023, CSG Law issued an alert regarding a proposed New York law that would have barred the use of almost all non-compete agreements in the Empire State and enabled employees to bring a lawsuit against an employer alleged to have violated such a prohibition. However, the proposed law has been vetoed by New York Governor Kathy Hochul, leaving existing New York law in place.

In June 2023, the proposed law passed both houses of the New York legislature and would have banned, subject to certain narrow limitations, “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 employment with the employer included as a party to the agreement.”  In her December 22, 2023 Veto Message, Governor Kathy Hochul explained that she thought the proposed law went too far (describing it as “one size fits all”), and that she prefers a statute that regulates non-complete agreements based upon income level:  “I continue to recognize the urgent need to restrict non-compete agreements for middle class and low-wage workers, and am open to future legislation that achieves the right balance.”

As a result, New York remains as it was: New York courts will enforce non-compete agreements only if they satisfy the overriding requirement of “reasonableness.” Decided on a case-by-case basis, a New York court will enforce a non-compete agreement only if the restraints contained therein (i) are reasonable in time and area; (ii) are no greater than is required for the protection of a legitimate interest of the employer; (iii) do not impose undue hardship on the employee; and (iv) are not injurious to the public. A “legitimate interest of the employer” includes, but is not limited to, the protection of an employer’s trade secrets, confidential information, and customer good will.

After Governor Hochul’s veto, the sponsors of the proposed New York legislation said they will attempt to introduce a modified version of their proposal in 2024. Accordingly, a new statute may be on the horizon. Employers must also be mindful that, on a national level, both the Federal Trade Commission (“FTC”) and National Labor Relations Board (“NLRB”) have adopted rulemaking and enforcement efforts to curb non-competes. On January 5, 2023, the FTC announced a proposed rule that would prevent employers across the country from entering into non-compete clauses with workers and require employers to rescind existing non-compete clauses. Garnering more than 27,000 comments from various interested parties, the FTC may formally vote on the proposed rule this year. In a similar fashion, on May 30, 2023, NLRB General Counsel Jennifer Abruzzo published a memo stating that—except in limited circumstances—the proffer and enforcement of non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act. Although the memo does not have the force of law, it does represent the official position of the NLRB’s General Counsel for future litigation.

At CSG Law, we continue to monitor and review pending legislation, laws, and regulations that target the use and enforcement of non-compete provisions between employers and their workforce. We encourage employers to review current agreements with their employees and proceed cautiously in current negotiations with prospective employees based on potential legislation and regulations that may arise in the near term. Employers should focus on narrower non-solicitation and confidentiality clauses that protect their interests, but do not outright ban an employer from working for a competitor.

If you have any questions relating to the non-compete agreements and pending legislation impacting such agreements, please feel free to reach out to your CSG Law attorney or the authors of this alert.