As a gift to employers in New York this festive season, Gov. Kathy Hochul made the significant decision of vetoing a bill that would have eliminated noncompete agreements in the state. While a ban is still possible in 2024 for certain employees and compensation levels, for now, noncompete clauses remain valid in New York. They will continue to face judicial scrutiny to ensure they are reasonable in terms of scope, duration, and geographical limitation.
While noncompetes are already deemed invalid in several states including California, Colorado, Minnesota, North Dakota, and Oklahoma, a broader shift might be on the horizon. In January 2023, the Federal Trade Commission (FTC) proposed a rule that could potentially ban noncompete agreements nationwide. This proposal has garnered substantial public interest, with over 27,000 comments submitted, delaying the FTC's formal vote on the rule until possibly April 2024.
In this evolving legal context, the implications for both employers and employees are significant. Employees should be vigilant and informed about the terms of any noncompete agreement to which they are subject; understanding its duration, scope, and geographic limits is crucial. It's advisable to seek legal counsel for guidance on the agreement's meaning and its enforceability, both at the start of employment and when considering a new position or facing termination.
Employers, on the other hand, need to be proactive. With potential new rules and legislation on the horizon, it is critical to reassess existing noncompete restrictions. Are these restrictions overly burdensome? Could your interests be sufficiently protected through confidentiality and non-solicitation clauses? Do your practices concerning trade secrets ensure that robust protections are in place? Collaborating with legal counsel to scrutinize all current restrictions in your agreements – whether in employment or separation contracts – is a prudent step.
If the FTC's rule is enacted, employers should be ready to inform current and former employees about the invalidation of their noncompete clauses. However, the impact on non-solicit and other types of restrictions remains uncertain.
The Employment Strategists commit to keeping a close watch on the developments surrounding noncompete agreements, both in New York and nationwide, as well as monitoring the FTC's forthcoming decisions. The landscape is changing, and it's crucial for both employees and employers to stay informed and prepared. Keep an eye on this space for further updates and insights.
