As my New York colleagues write here, the New York Legislature just passed a bill that would prohibit non-competition agreements between employers and employees. If signed by Gov. Kathy Hochul, New York will become the fifth state, after California, North Dakota, Oklahoma, and Minnesota, to ban virtually all non-compete agreements.
New York’s new bill follows a national trend towards limiting non-competes. In Memorandum GC-23-08, dated May 30, 2023, the General Counsel of the National Labor Relations Board indicated that non-competes may violate federal labor law, and at the beginning of this year the Federal Trade Commission (FTC) under Chair Lina Khan proposed a rule to ban new and existing non-compete agreements across the country. The issuance of the FTC’s rule is delayed and is not expected until at least April 2024 (and is likely to be challenged in court).
Those in favor of non-competes argue that they:
- Allow businesses to protect their interests (including many small businesses who can’t afford to litigate if key employees leave and take their customers)
- Are easier to enforce than agreements to protect trade secrets and other confidential information, because those disputes require fact intensive inquiries and can be expensive to litigate
California has embraced the arguments against non-competes including:
- They stifle innovation – example, Silicon Valley was born out of the ability to found new companies
- The fear of losing good workers makes employers better
- They allow workers to earn more by leaving for better jobs and opportunities
We shall see where New York and the rest of the US ultimately wind up on this issue. But as so often happens with employment law trends, what starts in California often moves to the east coast, then the rest of country follows. Only time will tell.