New York Gov. Kathy Hochul Vetoes Proposed Ban on Noncompetes

Many states have enacted statutes regulating noncompetition agreements. But many commentators were alarmed by the scope of New York’s proposed legislation. For example:

• It contained no limitations on income levels, meaning that even noncompetes for highly compensated executives would have become unenforceable.
• It contained no exceptions for noncompetes entered into in connection with the sale of a business.
• It was silent on key issues such as non-solicitation covenants and forfeiture for competition provisions.

As we previously discussed here, different states have taken varying approaches to limit the use of noncompete agreements. Some states, such as California, have banned them nearly in their entirety, while others like Delaware, Illinois, and Idaho take a middle-ground approach by prohibiting noncompetes for relatively lower-wage workers or otherwise carving out exceptions. Many states also lack a statute expressly addressing noncompetes and instead rely upon common law standards to determine whether they are enforceable. The bill in New York would have taken a hardline approach and banned all noncompetes.

Governor Hochul apparently sought a middle-ground position and wanted certain amendments to the bill. But the state legislature was apparently unwilling to make any changes to their original version. A stalemate was reached, and the Governor vetoed the bill outright.

This legislative process is somewhat unusual in New York. For a bill to become law, it must be first passed by the legislature and then signed by the governor. When a bill is first passed, the governor has three options: (1) sign the bill, (2) veto the bill, or (3) make chapter amendments. Chapter amendments allow the governor to essentially “red line” the legislation and negotiate with the Assembly and Senate instead of outright vetoing it. Here, Governor Hochul tried to use chapter amendments to negotiate a resolution that would benefit lower-wage employees while simultaneously protecting major sectors of the New York economy. Those negotiations apparently failed.

As reported by various news outlets, in a veto letter the Governor stated, “I continue to recognize the urgent need to restrict noncompete agreements for middle-class and low wage workers and am open to future legislation that achieves the right balance.” Indeed, the Governor’s approach could have been a reasonable solution, as we have previously argued.

In sum, the Empire State’s effort to eliminate noncompetes has failed. Only time will tell whether future legislators will make another attempt to regulate in this area.