Business

Wall Street is displeased as New York considers prohibiting noncompete employment agreements.

The association of noncompete agreements is often linked to high-ranking corporate executives possessing valuable trade secrets, whose substantial compensation packages often include a stipulation that prohibits them from joining a competing company if they resign or are terminated.

However, there is a growing trend where employers are now imposing these agreements on ordinary employees. Approximately 20% of the American workforce, which amounts to nearly 30 million individuals, are currently obligated to adhere to noncompete agreements, as reported by the Federal Trade Commission.

New York lawmakers passed a bill in June to prohibit noncompete agreements after reports of companies using them to restrict employees from leaving for better-paying jobs. However, Governor Kathy Hochul has not yet indicated whether she will sign the bill, which has faced strong opposition from business groups. The Business Council of New York's affiliate, the Public Policy Institute of the State of New York, launched a $1 million ad campaign to block the legislation, with Wall Street firms being among the most vocal opponents. These firms believe that noncompete agreements are necessary to safeguard investment strategies and prevent highly-paid employees from taking valuable insider information with them.Several states, such as California, have already implemented bans on noncompete agreements. In other states like Minnesota and Oklahoma, noncompete agreements are rendered void if an individual is laid off.

In January, the Federal Trade Commission proposed a regulation that would prohibit noncompete agreements, citing their negative impact on workers. President Joe Biden expressed his support for the regulation, stating that these agreements prevent retail workers, construction workers, and others from pursuing better job opportunities and receiving improved compensation and benefits within the same industry.

If signed into law by Democrat Hochul, the New York bill would only affect noncompete agreements signed after the law's implementation. It would not impose restrictions on nondisclosure agreements.

Hochul's office has stated that she is currently reviewing the legislation and has until the end of the year to make a decision.

Business groups argue that the ban should not be applicable to certain industries and job levels, such as top executives or partners in technology companies or law firms. They also express concerns that the ban could lead employers to relocate jobs to states like Florida and Texas, which do not have similar laws in place.

According to Paul Zuber, the executive vice president for the Business Council of New York, the bill in question could pose a significant threat to innovation and job growth. He believes that if the bill is enacted, it could disrupt the delicate balance between protecting business investment and fostering a competitive job market. However, advocates for the bill argue that it will actually promote innovation by striking noncompete agreements. State Senator Sean Ryan, who sponsored the bill, pointed to Silicon Valley as an example of how such agreements can stifle the economy. He believes that the bill will give employees more flexibility and agency when considering other employment opportunities. Tatum, a lighting designer who reached a legal settlement with his former employer to continue working in his profession, supports the bill and believes that no one should have to go through what he did.