Last Friday, New York Gov. Kathy Hochul vetoed legislation that would have banned the use of noncompete agreements and potentially other forms of employment contracts in the Empire State. The bill would have been the broadest and most restrictive such prohibition ever adopted by a state.  

Noncompete agreements have been under increasing scrutiny from policymakers and courts in recent years, and a growing universe of state legislatures have considered and enacted laws that ban or restrict their use. The measures enacted into law over the last decade largely prohibit the use of noncompete agreements in connection with employees who earn an amount below an established wage threshold or employees in certain industries, such as health care. 

Three states—California, North Dakota and Oklahoma—have prohibited the use of noncompete agreements in nearly all contexts for more than a century, and Minnesota passed similar legislation into law this summer. Notably, the statutes in these four jurisdictions include exemptions that generally permit noncompete agreements to be utilized in connection with the sale of a business or its assets and allow the use of other forms of employment covenants.  

The legislation sent to Gov. Hochul by the New York Legislature was expansive and sweeping. It would have prohibited the use of all noncompete agreements in the state and voided any contract that restrained an individual from “engaging in a lawful profession, trade, or business of any kind."

The bill applied to all employees regardless of salary level and to all professions, and it did not include an exemption for instances in which a business is sold. The bill raised significant concerns for many in the business community because of its unprecedented scope and fears that it might also prohibit the use of nondisclosure agreements and customer non-solicitation agreements.  

Gov. Hochul attempted to reach agreement with fellow Democrats in the state legislature on a reasonable compromise before ultimately vetoing the legislation. She sought, for example, to add a sale of a business exemption to the proposal and to limit its application to middle-class and low-wage workers who earn an amount below a particular income threshold.

Big I New York, with support from Big “I" national, was actively involved in behind-the-scenes discussions in recent weeks and advocated for the inclusion of a sale of business exemption and other important amendments. The association appreciated Gov. Hochul's support on these critical revisions and welcomed her veto once efforts to reach a consensus fell apart.  

The issue is almost certain to arise again when the New York Legislature reconvenes next year. In her veto message, Gov. Hochul noted that she is “open to future legislation that achieves the right balance."

The debate over the use of noncompete agreements will rage on elsewhere in 2024. Dozens of state legislative proposals that would prohibit or restrict the use of noncompete agreements are expected to be introduced in the near future, and, even more notably, the Federal Trade Commission is expected to finalize and release its own version of a noncompete agreement ban in the first half of the year. 

Wes Bissett is Big “I" government affairs senior counsel.