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Non-competition agreements in employment contracts have recently come under attack by two powerful federal agencies

In January  2023, the Federal Trade Commission  proposed  a rule which would render non-competes unenforceable  throughout the entire US.  This is the first step in  an administrative rule making process.  It is expected that the FTC will vote in April 2024 on whether to adopt this rule. The FTC’s legal theory is that non-competes constitute an unfair method of competition.

More recently, on May 30, 2023 the General Counsel of the NLRB issued a Memorandum which employed some creative reasoning to conclude that most non-competes violate the right of workers to engage in protected concerted activity under the National Labor Relations Act.  This law protects both union and non-union workers.  However, it generally does not protect supervisors, so this should not affect supervisors who have non-competes.

This Memorandum does not have the same force of law as a decision made by an NLRB Administrative Law Judge.  It is meant to provide guidance to the NLRB’s regional offices about how they should enforce the law.

It remains to be seen whether these actions, which are the product of two administrative agencies and not Congress, will survive judicial scrutiny.  The regulation of non-competes has historically been within the purview of  state legislative bodies and courts, and not the Federal government.

A number of states, including California, North Dakota, Oklahoma and Washington D.C, have enacted legislation prohibiting the enforcement of most non-competes.  Other states have enacted legislation prohibiting the enforcement of non-competes against employees who are below a certain salary level, or against medical professionals.

New York does not currently have legislation regarding the enforcement of non-competes. In New York these rules come from the courts, which are increasingly reluctant to enforce non-competes. For example, in recent years New York courts have declined to enforce non-competes against employees who were terminated without cause.

 Even still, it is likely that within the next five years New York will join these other states in enacting legislation restricting or  prohibiting the enforcement of non-competes.  This will probably be preceded by one or two years by a similar local law in New York City.