Last month, New York lawmakers approved one of the nation’s toughest bans on non-compete agreements. While the measure awaits Governor Kathy Hochul’s signature, lobbying groups from the finance industry and other business associations have gone to work pushing for exceptions.
(Bloomberg) — Last month, New York lawmakers approved one of the nation’s toughest bans on non-compete agreements. While the measure awaits Governor Kathy Hochul’s signature, lobbying groups from the finance industry and other business associations have gone to work pushing for exceptions.
The fight in New York comes as the Biden administration is working for a national plan to eliminate the contracts, which prohibit workers from going to a competing firm within a prescribed period of time. Businesses argue they protect intellectual property, trade secrets and costly investments in staff. Opponents say the forced time out hinders workers’ career progression and curbs how much they could earn.
An estimated 44% of New York’s workplaces subject employees to non-compete agreements, according to the legislation’s sponsor, Senator Sean Ryan, a Democrat from Erie County. And they’re particularly prominent among financial firms such as hedge funds, where prohibitions on employees moving to a new gig can run as long as two years.
The Business Council of New York State and Partnership for New York City are seeking amendments to the bill, which would go further than similar efforts in many other states. The groups represent hundreds of firms including banks, private equity firms, law firms, retail giants and telecom companies. The Securities Industry and Financial Markets Association is supporting the groups’ efforts.
The bill was passed last month in the New York Senate and Assembly, but doesn’t become law until it’s signed by the Governor. A spokesperson for Hochul’s office said she is reviewing the legislation. It could take months before it passes legal review and any changes must be approved by the Senate and state Assembly. Hochul has until Dec. 31 to sign or veto the bill.
Opponents object to the fact that, in the bill’s current form, there’s no room for exceptions. At least 11 other states plus the District of Columbia have restricted employers from imposing non-compete contracts on workers below certain income thresholds to protect low-wage earners, but most have stopped short of an outright ban. Four states — California, Minnesota, North Dakota, and Oklahoma — prohibit virtually all employee non-compete agreements, but allow for narrow exceptions in cases involving an ownership stake when a business is sold.
The Business Council of New York State would like to see similar caveats, said Executive Vice President Paul Zuber.
“I think the legislature was trying to help that person who is a low-wage worker that has a non-compete,” Zuber said. “I don’t think it was ever their intent to go as broad as senior management at financial services, banking, tech, entertainment sectors and more. Any business of relative size in these industries has reached out to us with concerns.”
Read more: All About Non-Compete Clauses the FTC Wants to Ban: QuickTake
The Partnership for New York City, whose members include Blackstone Inc., Citadel, DoorDash Inc., and AT&T Inc., is in discussions with the bill’s sponsors and the Governor’s office, while the Business Council is set to meet with Hochul’s staff in coming weeks. The Partnership also represents Bloomberg LP, parent of Bloomberg News.
In New York, the bill would only apply to contracts signed or modified after the law takes effect and doesn’t prohibit the use of confidentiality or non-solicitation agreements, leaving businesses with options to protect proprietary information, according to Senator Ryan, who is also chairman of the Senate’s commerce committee.
Employment lawyers point to a number of vagaries in the current language, including whether it can be applied to terms within non-solicitation or non-disclosure agreements, or to deferred compensation, which often makes up a substantial proportion of finance workers’ pay.
The definition of individuals covered under the bill is also broad, including people with “economic dependence” on a job, which could include a low-income worker or a hedge fund manager. Policymakers and workers-rights advocates say the contracts are often misused and applied to employees who don’t actually have access to sensitive information.
Not all business groups are opposed to a ban.
New York’s tech industry, which accounted for 28% of the city’s overall economic output in 2021, according to Tech:NYC’s latest report, is in favor of prohibiting non-compete contracts to help stimulate the startup sector. One 2020 study on non-compete contracts and the careers of high-tech workers shows a ban could increase employee mobility by 11% and boost new hire wages by 4%.
California, home to startup mecca Silicon Valley, has long outlawed the agreements — a move seen to be largely responsible for the state’s flourishing entrepreneurial culture that’s given rise to Apple Inc., Uber Technologies Inc. and Alphabet Inc.’s Google.
“We’ve wanted to create an ecosystem where employees can go and get trained at large employers and have the resources to take what they learned to spin off smaller companies,” said Julie Samuels, president and executive director of Tech:NYC, an industry group. “That’s how you create a really robust ecosystem.”
–With assistance from Chris Marr and Laura Nahmias.
(Updates to include Minnesota in states that prohibit virtually all non-compete agreements)
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