NY Noncompete Ban Up To Governor, Letter Submitted

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Now that both the New York Senate and Assembly have passed the bill to ban noncompetes, it will be up to Governor Hochul to decide what to do.

Previously, she indicated that she supports a noncompete ban for anyone earning less than the NY median wage. Will she be in support of a full ban? Hard to know, but people tend to think she will.

Recognizing that the issue is quite complicated and fraught, I submitted a letter to the Governor providing key points for her consideration.

Maybe it will fall on deaf ears, or maybe she will consider the points and not sign the bill as written.

To that end, I identified several key points for her consideration:

  • Noncompetes are an important prophylactic tool for the protection of trade secrets, other confidential business information, and hard-fought customer relationships.
  • The elimination of noncompetes will lead to a significant increase in the likelihood that trade secrets will be unlawtully taken to a competitor.
  • A noncompete ban will result in a substantial increase in more costly, more time-intensive (for
    employees, companies, courts, and lawyers), and less predicable trade secret litigation as a substitute for noncompete enforcement litigation (as occurs in California).
  • The bill could be interpreted as banning noncompetes in the context of a sale of a business (or an interest in a business), which can be very harmful.
  • The bill adopts the language of the Field Code, which has also been adopted in California, North Dakota, and Oklahoma. The language has been interpreted differently in those states; in California, as of 2008, it has been read to ban customer nonsolicitation agreements, whereas in North Dakota and Oklahoma, it has not. Any law in New York using similar language should clarify its intended scope.
  • A ban on noncompetes for low-wage, low-skilled workers would target the prohibition to those who need the protection most.
  • Requiring companies to provide advance notice that a noncompete will be required should address many of the concerns underpinning a proposed ban.
  • Small businesses (the dominant engine of job growth over the last decade) and their employees will be disproportionately adversely impacted in multiple ways, including less investment and expansion opportunities for growth, the inability of many of them to afford costly trade secret litigation over what might be their most valuable asset, and diminished worker opportunities and training.

I also pointed out that, to the extent the Governor may rely on the existing body of noncompete studies, those studies suffer from various deficiencies, some of which have been made more evident by some of the new studies.

Given the potential issues with the proposed ban, I identified the following more conservative options:

  • Ban noncompetes for low-wage workers, based on non-exempt status under the Fair Labor Standards Act.
  • Require advance notice of noncompetes.
  • Require employers to provide a short summary of the restrictive covenants, so employees can quickly and easily determine what is being asked of them.
  • Ban noncompetes for certain professions/jobs, where necessary for the protection of certain third parties.
  • Penalties for companies that willfully violate the law.
  • Adopt the so-called purple-pencil rule, providing a hybrid of the red-pencil rule and reformation approach. (The name was totally made up during the Massachusetts legislative process.)
  • Provide for springing noncompetes, i.e., allow courts to prohibit an employee from engaging in certain work when, based on the employee’s breach of certain enforceable obligations, the court is convinced that the individual cannot be trusted to perform the work without continuing to violate their other obligations.

As I explained in my letter to Governor Hochul, while I summarized some of the key points and possible alternative approaches, far more detail, analysis, and support is provided by letter that I and over 100 other lawyers (with enormous assistance from Erika Hahn) submitted to the FTC in response to its proposed ban, a copy of which I enclosed.

We will be monitoring all developments and keep you posted.

 

*Thank you to Erika Hahn for her help getting this letter out to the Governor.

* * *

In the meantime, because we know how hard it is to keep up with the ever-changing requirements around the country, we have created the following resources (available for free):

We also have a 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).

We hope you find all of these resources useful.

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