For high-powered Wall Street and banking executives, one of the hallmarks of the job comes into play only at the end: a signed noncompete agreement.The employment clauses have long been used by big-name companies to prevent top employees from working for a nearby competitor, typically for six months to two years after leaving, allowing firms to protect intellectual property and deter brokers and consultants from poaching clients.But that may soon change in New York.
Five months ago, the state Legislature passed a bill that would outlaw noncompete agreements, one of several efforts nationwide in recent years to protect a range of employees. All kinds of workers — from doctors to hairstylists to sandwich makers — are sometimes unknowingly trapped by the restrictive clauses.
But as the implications of a ban at New York City’s most powerful industries have come into focus, so has a deep-pocketed lobbying effort to persuade Gov. Kathy Hochul to not sign it into law — or at least blunt its impact.Big banks, media companies and business groups have scrambled an army of lobbyists to warn how a statewide ban would dramatically upend the way they hire and do business in one of the world’s leading financial capitals and commercial hubs.
Lobbyists representing a large swath of industries and corporations, from Wells Fargo Bank and Goldman Sachs to NBC Universal and Charter Communications, have all lobbied officials on the bill this year.A group affiliated with the Business Council of New York State says it is spending more than $1 million on an ad campaign that began last month with ominous videos warning how a ban “would shatter our economy, crippling business’s ability to fuel innovation and retain talent.”
And the Partnership for New York City, an influential business lobby, has made its outreach to Hochul known to its members, which include investment firms such as Blackstone and BlackRock. It circulated a memo that it sent to Hochul offering amendments that would essentially carve out well-paid workers from a ban.
“We have so many high-level people in the financial services industry where it’s very important that when they’re paying people tens of millions of dollars a year and giving them complete access to inside information, that they can’t just jump to a rival,” said Kathy Wylde, leader of the Partnership for New York City.The lobbying frenzy to kill or water down the bill has placed Hochul, a moderate Democrat, under acute pressure from many of the same business interests and wealthy donors who helped bankroll her campaign for governor last year. The governor’s office, which has until the end of the year to act on the bill, said it was still reviewing the legislation.
Use of the agreements has spread across the labor landscape in recent years, trapping low-wage workers who are sometimes surprised to learn they signed away their right to leave for a competitor.
“We want people to freely go from job to job, and a lot of people sign them when they get onboarded, just when they’re signing their health insurance papers, and they don’t even know they’re signing a noncompete,” said state Sen. Sean Ryan, a Democrat from Buffalo who introduced the bill.
The push to ban or limit noncompetes has increasingly shifted from a fringe idea to the Democratic mainstream, cast by proponents as a way to increase competition among businesses and to help raise wages for workers, since job switching is a proven way to secure a raise.
Under President Joe Biden, the Federal Trade Commission proposed a national ban on employers requiring workers to sign noncompete agreements as a condition of employment. And amid the mounting scrutiny, about half of states already have sharp limits on noncompetes.
Earlier this year, Minnesota banned most noncompete agreements, joining Oklahoma, North Dakota and others; California has deemed such agreements unenforceable for more than a century. Indeed, supporters of a ban point to the booming technology and startup sector that has flourished in Silicon Valley despite a ban on noncompetes, saying competition there was driven in part by increased worker mobility.
In New York, the effort to ban noncompetes has added resonance because of the state’s global economic status and its plethora of high-profile and influential industries that are driven by client relationships.
Business groups want Hochul to narrow the scope of the ban so that noncompetes are prohibited for lower-wage workers but still allowed for better-paid workers with specialized knowledge or skills.
Although the prevalence of noncompetes is difficult to measure and is somewhat debated, surveys show that across the nation, between 18% to 45% of workers in the private sector may be bound by noncompetes.
Supporters of banning them argue that, rather than protecting companies, they allow companies to impede the free movement of labor and suppress the wages.
“Over the years, they’ve kind of filtered down throughout the economy and are now binding people who there’s no reason for them to be bound by a noncompete, other than driving down their ability to negotiate a higher wage rate,” said Pat Garofalo, director of state and local policy at the American Economic Liberties Project, a nonprofit that pushes for antitrust regulations.Melanie Lee, 29, is among the New Yorkers who say they have been unfairly burdened by a noncompete agreement.
She gave up her job in the fashion industry to become a tattoo artist in late 2020, joining a studio in Queens as an apprentice. Two months later, she said she was asked to sign a noncompete contract, which was reviewed by The New York Times. She would have to pay the studio $15,000 in liquidated damages if she left within two years and she would not be allowed to work as a tattoo artist within 20 miles of the shop for two years, essentially meaning she would have to move out of the city.
She ended up leaving after a year and was quickly slapped with a $15,000 invoice. She moved to another studio in Brooklyn, and has since been entangled in a legal battle with the other studio.
“It feels like I’m being held hostage,” Lee, who testified about her experience during a legislative hearing in Albany this year, said in an interview. “I don’t make enough money to have a however long legal battle to fight something like this.”
“I don’t believe that I owe them anything at this point,” added Lee, who said her previous studio took 50% in commission from every paycheck.
Groups opposed to the ban argue that the change could make it harder for firms to retain employees, and would deter them from investing in workers or sharing sensitive information with them.
The ban, perhaps unintentionally, would also end the use of noncompete provisions that are typical of business acquisitions. A business being acquired is often barred from competing against the business buying it.
Minnesota’s ban carved out an exemption for the sale of businesses, but New York’s proposed ban does not, an oversight that industry analysts warn could dampen the investment environment in New York.
John Siegal, a partner at the law firm BakerHostetler who specializes in noncompete and trade secrets disputes, said the ban, as written, would represent “a sea change in the employment markets” of real estate brokers, insurance brokers, investment bankers, private bankers and consultants in New York.
“We have a people- and relationship-based economy,” he said. “The major assets of these businesses come in the door in the morning, they go up the elevator and at the end of the day, they take the elevator down and they leave.”
(Published 12 November 2023, 11:14 IST)