When people think of noncompete agreements, they usually think of corporate executives with knowledge of prized trade secrets, whose lavish pay packages often come with a condition that if they quit or get fired, they can’t go work for an industry rival.
More and more, though, employers are requiring regular workers to sign those deals. About 1 in 5 American workers, nearly 30 million people, are bound by noncompete agreements, according to the Federal Trade Commission.
Horror stories about companies using noncompete agreements to trap workers in middling jobs or punish them for taking their skills elsewhere for better pay prompted New York legislators to pass a bill last June that would ban noncompete agreements.
Five months later, though, Gov. Kathy Hochul hasn’t said whether she intends to sign the legislation, which has come under a fierce attack by business groups.
The Public Policy Institute of the State of New York, an affiliate of the Business Council of New York, launched a $1 million ad campaign last month in an attempt to thwart the legislation. Some of the loudest opposition has come from Wall Street, where firms see noncompete agreements as important to protecting investment strategies and keeping highly-paid workers from walking out with valuable inside information.
Supporters of the ban say it would help people like lighting designer Richard Tatum, a New York City resident who had signed a noncompete agreement and spent a year fighting a former employer in court after they sued him for getting another job shortly after they laid him off in 2009. He had a family to support and wasn’t moving or leaving his industry, he said.
“I felt I had no choice but to fight,” said Tatum, who now works for an event production company. He said he understands being fired during the financial meltdown. “But the fact that I had to spend a year fighting off my former employer was just wrong.”
A handful of states, including California, already ban noncompete agreements. Other states, including Minnesota and Oklahoma, have laws that void noncompete agreements if a person is laid off.
A federal ban in the works
The Federal Trade Commission proposed a regulation in January banning noncompete agreements, arguing that they hurt workers. President Joe Biden said at the time that the agreements “block millions of retail workers, construction workers and other working folks from taking better jobs and getting better pay and benefits in the same field.”
If signed by Hochul, a Democrat, the New York bill would only affect noncompete agreements signed after the law goes into effect. The legislation would not restrict nondisclosure agreements.
Hochul’s office said she’s still reviewing the legislation. She has until the end of the year to make a decision.
Business groups say the ban shouldn’t apply to certain industries and job levels, like top executives or partners in tech companies or law firms. They also claim it could push employers to ship jobs to states like Florida and Texas that do not have similar laws.
“This bill poses a serious risk to innovation and job growth and, if enacted, could unravel the delicate balance between protecting business investment and fostering a competitive job market,” said Paul Zuber, the executive vice president for the Business Council of New York.
Advocates for the bill argue that striking noncompete agreements will actually be good for innovation.
State Senator Sean Ryan, a Democrat who sponsored the bill, pointed to Silicon Valley in California, a hub for tech companies.
“All the flexibility you see in that economy would have been dashed had they made it so you couldn’t go work for an emerging tech company,” Ryan said.
The bill, he added, would give employees more flexibility and agency when considering other employment opportunities.
Tatum, the lighting designer who reached a legal settlement with his former employer to keep working in his profession, said, “I just don’t think anyone like me should have to go through that again.”