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Future of noncompete agreements in NY in Gov. Hochul’s hands
By
Jon Campbell
Published Dec 11, 2023
Modified Dec 11, 2023
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Photo by Michael Groll/Office of Governor Kathy Hochul
By
Jon Campbell
Published Dec 11, 2023
Modified Dec 11, 2023
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Gov. Kathy Hochul will decide the future of noncompete clauses in New York over the next three weeks — and it will likely come down to whether she can strike a compromise among key state lawmakers, business interests and labor unions.
Hochul has until the end of the year to sign or veto a measure that, going forward, would effectively ban noncompete agreements – clauses in many employment contracts that restrict where someone can work after leaving a particular company for a certain period of time. The agreements are often intended to prevent former employees from working for a competitor.
The bill has spurred an end-of-year lobbying war between the state’s major business organizations — including an affiliate of The Business Council, which spent seven figures on an advertisement claiming the measure will destroy the state’s economy — and powerful labor unions, who say noncompete clauses do nothing but harm workers by restricting their freedom to seek work elsewhere.
With the clock ticking, the Democratic governor surprised some last week by publicly floating a compromise backed by the business community: A $250,000 salary threshold, meaning anyone over that amount could still be subject to a noncompete agreement while lower-wage workers would be protected.
But threading the needle on a potential deal with the Legislature has so far proved to be a difficult task, and the bill's fate hangs in the balance.
State Sen. Sean Ryan of Buffalo, the bill’s Senate sponsor, says he’s open to carving out high-earning finance executives and similar titans of industry — the types of people Hochul says are well-equipped to negotiate noncompete agreements on their own behalf.
But he says a $250,000 salary threshold is far too low.
“We’re trying to come up with a solution that will make it so … the C-suite executives can still stay under noncompetes,” Ryan said. “But $250,000 is way too low for a New York City top executive.”
An estimated 30 million workers in the United States — about 1 in every 5 — are subject to some type of noncompete restrictions, according to the Federal Trade Commission, which is weighing a federal ban. A handful of states, including California, already have near-total bans.
The state Legislature approved the noncompete ban in June largely along party lines, with Democrats voting in favor and Republicans voting against.
In Albany, Hochul has three options when the Legislature passes a bill: Sign it, veto it, or negotiate changes with the Legislature under a process known as a “chapter amendment.”
If she strikes a deal with lawmakers, the Legislature can pass a chapter amendment to essentially make retroactive changes as a measure becomes law.
That’s what’s going on with the noncompete ban now.
For months, business interests — including the Partnership for New York City, the major city-based organization — have been pushing Hochul and lawmakers to negotiate a $250,000 salary limit.
In a memo to lawmakers in June, the Partnership said noncompete clauses are a necessity for major Wall Street firms, who need them to protect their interests when negotiating with senior employees who could flee to competitors and take trade secrets with them.
“New York City is the global financial capital and a growing innovation hub,” the memo said. “Many of its employers rely on non-compete agreements with their senior employees to protect their intellectual property, proprietary information, and client relationships for some period during which they are prepared to compensate covered employees.”
In the memo, the Partnership floated the $250,000 threshold “when the employer is providing a year of compensation as part of the agreement.”
Although Hochul doesn’t typically comment on pending legislation, she made an exception for the noncompete ban bill last week and essentially adopted the Partnership’s proposed compromise.
“I have to strike the balance to make sure we take care of lower- and middle-income workers — up to, say, $250,000 — and also then know that those at higher levels are very well-equipped to negotiate on their own behalves,” she said. “And I want to make sure that the businesses stay here.”
But a salary threshold is a non-starter for one of the bill’s major supporters: SAG-AFTRA, the union that represents thousands of media professionals, including on-screen actors and broadcast journalists.
The union has been pushing for noncompete bans from state to state with some success. Five states — including California — have enacted near-total bans, while more than a dozen others impose some level of restrictions. That includes New York, which prohibited noncompetes for broadcasters in 2008.
Jeffrey Bennett, SAG-AFTRA’s general counsel, said noncompete clauses have the effect of stagnating wages and preventing workers from seeking what they’re worth. He said a ban can work and has worked in states with major industries that have concerns about trade secrets and intellectual property, and pointed to California and the tech industry.
The union would be open to looking at potential compromises that could protect trade secrets, but it would want to see actual bill language before committing to anything, Bennett said.
But an income cap, like the $250,000 cap Hochul is seeking? That’s “just not the answer,” he said.
“The concept of an income cap is absolutely a hard no for us,” he said. “We are vigorously opposed to an income cap. We think it would be a huge mistake.”
In January, the FTC proposed a nationwide rule that would effectively ban noncompete agreements, arguing that it would increase worker earnings by an estimated $250 billion to $296 billion per year, partly by giving workers more freedom to seek higher pay at competing companies.
Late last month, an FTC official wrote to Hochul laying out some of the federal commission’s research. Last week, Hochul said a federal noncompete ban would be ideal.
“There should be a federal policy on this,” she said. “Because otherwise, [employers] will go to states that are more friendly toward their interests. I don’t want there to be this competition between states.”
Ryan, meanwhile, said he’s been in contact with Hochul’s team and is open to negotiating something that takes her concern into account. He suggested there could be room to come up with an exception that applies specifically to Wall Street executives and takes things like stock options and bonuses into account.
“If you want it to apply to Wall Street executives, then we can develop something to apply to Wall Street executives,” he said. “But not to the low- to mid-level people in the financial and the insurance world.”
Time is running short, and Hochul’s attention is divided; the noncompete bill is one of 101 bills the governor has to decide on before the year’s end.
But Ryan said there’s still plenty of time to strike a deal.
“I'm always optimistic that once people put their attention and focus on things, we can come up with solutions,” he said.
This story was updated to note how many bills are currently before Gov. Kathy Hochul awaiting her action.
Disclosure: SAG-AFTRA represents some employees at New York Public Radio, which owns Gothamist. Reporters are among the unionized employees, including the writer of this article. It does not represent editors, including the three editors involved in assigning or editing this article.
Tagged
economy
Politics
art
Kathy Hochul
Jon Campbell
Jon Campbell covers the New York State Capitol for WNYC and Gothamist. Prior to that, he covered the Capitol for more than a decade for the USA TODAY Network. He has twice earned the Walter T. Brown Memorial Award, an honor given annually by the Legislative Correspondents Association alumni for outstanding state government coverage. Jon grew up in the Buffalo area and graduated from the University at Albany. Got a tip? Email Jon at [email protected] or Signal at JonCampbellNY.90.
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