An Update on the New York Noncompete Ban: It Is Unlikely the Governor Will Sign It Anytime Soon

We wrote previously about how nobody seemed to be talking seriously about the noncompete bill that was passed by both the New York General Assembly and Senate last month. If signed by Governor Hochul, the bill would ban noncompetes without a carveout even in the sale of a business context, which both California and the Federal Trade Commission’s proposed rule include.

Fortunately, in the weeks since we wrote that post it appears that people are finally taking notice. Several legal and industry organizations in New York have either submitted or are in the process of drafting letters or otherwise reaching out to the Governor’s office, and we have been in close personal contact with insiders in Albany. Here is a brief update of the current status and process, and what can be expected next:

Governor Hochul has through December 31, 2023, to “call up” the bill for action, or for the legislature to otherwise transmit it to the Governor (typically, the Governor and legislature coordinate on that date, in particular on more complicated and/or controversial bills, like this one).

• Once the bill is transmitted, Governor Hochul then has 10 days to act on it, i.e., either sign or veto the bill. If the Governor does nothing, the bill becomes law.

• A “pocket veto” is limited to bills that are passed at the very end of the session (i.e., in late December), so that would not be available to Governor Hochul here.

Governor Hochul can also request of the legislative sponsors a “chapter amendment.” Chapter amendments are when the Governor provisionally signs a bill with the agreement that the legislature will re-pass the bill as soon as possible with changes.

• These changes are negotiated between the Governor’s office and the sponsors and are voluntary.
• Chapter amendment negotiations are private and only between the bill sponsors and the executive chamber.
• It is understood that if the Governor’s office requests a chapter amendment and the sponsors do not agree to the amendment, the bill has a greater chance of being vetoed.
• Typically, chapter amendments are limited to smaller changes, rather than wholesale rewriting of a bill, which are reserved for the more formal (and public) legislative process.

Based on everything we are hearing, and reading the tea leaves, it seems likely to us that New York will ultimately end up where most other states have, with compromise legislation that includes a wage or compensation threshold, notice requirements, penalties for noncompliance, and an express carveout for noncompetes entered into in connection with the sale of a business. Recall that many of the states that have enacted noncompete legislation over the past several years all started as outright bans and ended with compromises, including Illinois, Massachusetts, Washington state, and Washington, D.C., with the only exception being Minnesota (which banned noncompetes as of July 1, 2023). Indeed, like the New York legislature, the District of Columbia Council actually passed legislation banning noncompetes in 2020, but by the time it went into effect in 2022 it was watered down substantially to include compensation thresholds, notice requirements, and penalties for noncompliance, and included an express carveout for noncompetes entered into in connection with the sale of a business.

We think it is likely that Governor Hochul will request a chapter amendment or veto the bill, and may not act on it until later this year. It is hard to imagine the bill being signed and going into effect in its current form. It is simply too ambiguous and will create confusion, which is perhaps the most harmful outcome for businesses in New York, and it does not consider the legitimate interests of employers and those who might acquire businesses in New York.

Indeed, in early 2022, Governor Hochul suggested that she was open to a compensation threshold for noncompetes, as opposed to an outright ban, as follows:

To ensure that our State’s economic growth and recovery lifts up all workers, Governor Hochul will:

• Ban Agreements That Limit Workers’ Ability to Move and Work Freely: Governor Hochul will propose legislation to eliminate non-compete agreements for workers making below the median wage in New York State and to explicitly ban all “no-poach” agreements under State antitrust law.

We will keep you posted with any new developments.