ALBANY, N.Y. — New York's governor vetoed a bill just days before Christmas that would ban non-compete agreements, limiting employees' ability to leave their jobs for a position at a rival company.
Governor Kathy Hochul, who said she was trying to work with the Legislature this year on a “reasonable compromise,” called the bill “a one-size-fits-all approach” for New York companies trying to retain legitimate top talent.
“I continue to recognize the urgent need to limit non-compete agreements for middle-class and low-wage workers, and am open to future legislation that strikes the right balance,” she wrote in a veto letter released Saturday.
The veto is a blow to labor groups, which have long argued the agreements hurt workers and hindered economic growth. The Federal Trade Commission had also sent a letter to Hochul in November urging her to sign the bill, saying the agreements could harm innovation and prevent the formation of new businesses in the state.
But in recent months the legislation has come under fierce attack from Wall Street and top business groups in New York. They argued that the agreements are necessary to protect investment strategies and prevent highly paid employees from leaving their companies with valuable insider knowledge and working for an industry rival.
Although the agreements are often associated with top executives, about 1 in 5 U.S. workers — nearly 30 million people — are now bound by non-compete agreements, according to the Federal Trade Commission.
For example, the sandwich chain Jimmy John's previously came under scrutiny for forcing its low-wage employees to sign a non-compete agreement that prevented them from working for a nearby company for two years after they left. In 2016, the company reached a settlement with the New York Attorney General, agreeing to no longer enforce the agreements.
The Federal Trade Commission has proposed its own rule to eliminate all non-compete agreements nationwide, arguing that they unfairly reduce competition.
Peter Rahbar, an employment attorney who represents individuals facing non-compete issues, said he was disappointed the governor vetoed the bill.
“I see it as a missed opportunity to help employees influence their negotiations with employers,” he said. “She misses an important step that would not only give workers the freedom to choose where they want to work, but also deprive them of the opportunity to increase their income.”
The Federal Trade Commission has estimated that banning non-compete agreements could increase employee earnings by about $250 billion to $296 billion per year.
Rahbar called California the “center of American innovation,” attributing that to the state's long-standing ban on non-compete agreements.
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Maysoon Khan is a staff member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues. Follow Maysoon Khan on X, formerly known as Twitter.