New York Ban on Employee Noncompetes Heads to Hochul’s Desk

New York would ban employee noncompete agreements under legislation heading to Gov. Kathy Hochul’s desk, mirroring a broad pushback—including from two federal agencies—looking to rein in the employment restrictions.

The measure (A1278) is going to Hochul (D) for her review after passing the state Assembly on Tuesday. Its passage comes just a few weeks after Minnesota enacted a ban on most employee noncompetes as part of a sweeping labor budget bill that takes effect July 1.

Like the Minnesota law, New York’s noncompete ban would apply to contracts signed or modified after the law becomes effective.

Employers’ use of noncompete contracts, which restrict workers from going to work for a competitor and cover an estimated one-fifth of the US workforce, has come under fire from federal and state policy makers.

The Federal Trade Commission is finalizing a rule to largely ban the employment contracts nationwide, and the National Labor Relations Board’s general counsel said in a May 30 memo that noncompetes violate federal labor law in most situations.

Those federal efforts stand to incur resistance from the business community, including litigation against the FTC rule once it’s made final. Business groups argue noncompetes are sometimes necessary and appropriate to protect companies’ trade secrets and their investment in training employees.

But many policy makers and worker rights advocates say the contracts are commonly misused and applied to employees with no access to trade secrets, in some cases hindering low-wage workers from pursuing better-paying jobs and career advancement.

State law has historically governed the use of noncompetes, with limitations on their enforceability varying both in statutes and case law. At least 11 states plus the District of Columbia have banned employers from imposing noncompetes on workers below certain wage thresholds, but most have stopped short of an outright ban.

Three others—California, North Dakota, and Oklahoma—ban virtually all employee noncompetes, with narrow exceptions for those with an ownership stake when a business is sold.

The New York legislation wouldn’t block employment contracts that prevent workers from disclosing trade secrets or confidential client information, or from soliciting the employer’s clients, as long as the contract doesn’t “otherwise restrict competition in violation of this section,” according to the bill text.

The state Senate passed the noncompete ban earlier this month. The Assembly then took up the measure during an extra day of work after its formal session elapsed with bills still left to debate.