When people think of non-compete agreements, they usually think of corporate executives with knowledge of valuable trade secrets, whose lucrative pay packages often come with the condition that if they quit or are fired, they can’t go to work for an industry rival.
Increasingly, however, employers are requiring regular workers to sign such contracts. 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 keep workers in mediocre jobs or punish them for taking their skills elsewhere for better pay prompted New York lawmakers to pass a bill last June that would ban them.
But five months later, Governor Kathy Hochul hasn’t said whether she’ll sign the bill, which has come under fierce attack from 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 defeat the legislation. Some of the loudest opposition has come from Wall Street, where firms see non-compete agreements as important for protecting investment strategies and preventing highly paid employees from leaving with valuable inside information.
Supporters of the ban say it would help people like lighting designer Richard Tatum, a New York City resident who signed a noncompete agreement and spent a year fighting a former employer in court after it sued him for getting another job shortly after firing him in 2009. He had a family to support and wasn’t moving or leaving the 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 understood being laid off during the financial crisis. “But the fact that I had to spend a year fighting my former employer was just wrong.”
A handful of states, including California, already prohibit non-compete agreements. Other states, including Minnesota and Oklahoma, have laws that void non-compete agreements when a person is fired.
Federal ban in the works
The Federal Trade Commission proposed a rule in January to ban non-compete agreements, arguing that they hurt workers. President Joe Biden said at the time that the agreements “prevent millions of retail workers, construction workers and other working people 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 non-compete agreements signed after the law takes effect. The legislation would not restrict non-disclosure 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, such as top executives or partners at tech companies or law firms. They also claim it could push employers to move jobs to states such as Florida and Texas, which do not have similar laws.
“This bill poses a serious risk to innovation and job growth and, if enacted, could upset the delicate balance between protecting business investment and fostering a competitive labour market,” said Paul Zuber, executive vice president of the Business Council of New York.
Supporters of the bill argue that non-compete agreements are actually good for innovation.
State Senator Sean Ryan, a Democrat who sponsored the bill, pointed to California’s Silicon Valley, a hub for technology companies.
“All the flexibility that you see in this economy would have been destroyed if they had made it so you couldn’t work for a start-up tech company,” Ryan said.
The bill, he added, would give workers more flexibility and agency when considering other employment opportunities.
Tatum, the lighting designer who reached a legal settlement with his former employer to continue working in his profession, said: “I just don’t think someone like me should have to go through that again.