New York noncompete ban edges forward, still faces major hurdle

Corrected December 19, 2023: recalculation of 10-day window

New York is inching closer to some type of a ban on noncompetes.

We should know more by Saturday, though the answer may be that we still won’t know.

Background:

As people will remember, the New York Legislature sent a bill to ban noncompetes to Governor Hochul back in July.

For reasons relating to the New York legislative processes, the Governor was not required to act on the bill at that point.

Not surprisingly, many people promptly expressed their opinions to the Governor – me included.

Even the Federal Trade Commission, which is considering a noncompete ban of its own, recently weighed in. In a letter sent by Deputy Director Sarah Mackey-Barr on November 28, 2023, the FTC urged the Governor to sign the proposed ban. I guess we now know where the FTC will be coming out on its forthcoming rule.

In support of its advocacy, the FTC’s letter cites to a number of studies that are simply not a reliable basis for broad-impact legislation. More on that in an upcoming blog post, but for now, if you’re interested, read the letter that I and 100 other lawyers sent to the FTC on April 23, 2023.

The FTC aside, the following day (November 29), Bloomberg Reporters Chris Marr and Zach Williams broke the story that Governor Hochul wanted two changes to the bill.

First, the Governor objected to the failure of the bill to (clearly, at least) permit noncompetes to be used in the context of the sale of a business, where noncompetes are routinely used – even in California – to prevent the seller of a business from immediately starting a new, competing business and thereby depriving the purchaser of the full value of its investment.

Second, consistent with her previously stated position, Governor Hochul wants to insulate low-wage and middle-wage workers from noncompetes to protect their mobility. But she does not buy into the idea that a ban for higher-wage earners is appropriate. There is some discussion that the dividing line (i.e., the amount an employee must earn before they can have a noncompetes) might be $250,000, though I have also heard $200,000. Whichever the number, it would be by far the highest threshold, which until now has been Washington, D.C.’s at $150,000 (which will increase marginally in January).

So what happened?

Last week, on December 12, the Legislature officially delivered an amended bill to the Governor.

Rather than include the changes that Governor Hochul identified, the Legislature simply added language clarifying that the ban would preserve the existing statutory exemption for broadcast employees. (Interestingly, this change is similar a last-minute change made last year to Washington, D.C.’s noncompete legislation.)

At this point, Governor Hochul has, I believe, at least until December 23 to decide whether to sign or veto the amended bill.1 I actually think, however, that she may have longer.

Regardless of the precise timing, given that the Legislature ignored the Governor’s two issues, I think it’s at least fair to assume that if she were to sign the bill in its current form, there would need to be an agreement that it will be amended to address the changes she identified last month. (There’s a strange procedure in New York to allow for that through “chapter amendments”; don’t ask.)

We shall see.

In the meantime, there is an excellent opinion in the Globe and Mail by Gus Carlson explaining the reasons that a noncompete ban would harm the New York economy.

While I do not know if Mr. Carlson is right or wrong on the ultimate impact, my concern is that no one does: not the researchers, not the legislators, not the FTC, not President Biden, and not any of the lawyers advising caution. And because of that, relying on inconclusive, inconsistent research and biased advocacy sets everyone up to be part of a grand experiment that may well lead directly to significant, irreversible negative consequences for the economy, consumers, and workers. (More on that soon.)

In the meantime, I will report back on the New York law when I hear more.

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[1] I leave it to New York lawyers to determine exactly when the Governor needs to sign or veto. I have seen suggestions that she has 10 days, excluding Sundays, which would mean that the Governor has until December 23. However, the 10-day rule applies when the Legislature is in session. As I understand it, the Legislature is not in session, and the Governor should have 30 days. Of course, that would mean that her deadline goes into the next calendar year (though same legislative session), and it’s unclear how New York handles that (e.g., is it shortened to December 31?).

*Thank you to Erika Hahn for her extraordinary work helping me stay on top of all of the pending noncompete legislation around the country. And thank you to my former partner, David Sanders, for sending me the Globe and Mail opinion.