iOn December 22, 2023, New York Governor Kathy Hochul vetoed legislation that would have instituted a near-universal ban on non-competition provisions in New York after negotiations between the Governor and the bill’s legislative sponsors reached an impasse. We summarized the now-defeated bill here and further commented on some of its important shortcomings in a subsequent post here.
The bill, which was stalled after its passage by the New York legislature six months ago, has been the subject of significant attention for many observers. In short, had the measure been signed into law by the Governor, it would have been one of the most restrictive pieces of legislation governing non-compete agreements in the country. The Governor’s veto followed a strident lobbying campaign from New York employers and various industry groups that opposed the bill. These stakeholders had expressed fear that the legislation would eviscerate New York employers’ longstanding ability to use non-competes to protect their business interests and intellectual property in instances where high earners departed for competitors, as well as in the sale-of-business context.
The Governor had previously indicated that while she supported a more moderate ban on non-competition provisions that would prohibit mobility restrictions for lower and medium income earners, the Governor wanted to see the incorporation of both a salary threshold for the use of non-competes (i.e., such that higher earners could still be subject to non-compete provisions) and an exception for sale-of-business situations. The bill’s legislative sponsors balked at the “low” $250,000 salary threshold proposed by the Governor and negotiations stalled over not only the amount of the salary threshold but how it would be calculated (e.g., whether and how the threshold amount would include bonuses and commissions earned by New York employees). Ultimately, after negotiations with bill sponsors deteriorated over the past week, the Governor vetoed the legislation, expressing that she had “attempted to work with the Legislature in good faith on a reasonable compromise [while] allowing New York’s businesses to retain highly compensated talent.”
Despite the veto, New York employers should continue to monitor legislative and regulatory developments around this issue as the Governor’s veto likely does not signal the end of efforts to limit non-competes. While the now-vetoed New York bill was broader in its scope than the Federal Trade Commission’s proposed rule curbing non-competes (which we wrote about here), the FTC’s rulemaking effort remains in play for employers nationwide. And, the New York legislation’s State Senate sponsor has already acknowledged that he will reintroduce a similar bill next legislative session.
Mintz’s Employment Group will continue monitoring such developments and is available to assist employers in crafting appropriately tailored restrictive covenants to protect their business interests.
