NY Governor Vetoes Bill to End Noncompete Agreements

New York Gov. Kathy Hochul has vetoed a bill that would have prohibited noncompete agreements, such as those widely used by insurance brokers.

Source: AM Best | Published on December 28, 2023

FTC to bar noncompete agreements

New York Gov. Kathy Hochul has vetoed a bill that would have prohibited noncompete agreements, such as those widely used by insurance brokers.

Five states currently largely ban the employment practice and the U.S. Federal Trade commission has proposed a rule to end the practice binding about one-in-five employees. On Jan. 1, California will expand its ban on noncompete contracts, making them illegal.

After Hochul vetoed New York’s bill to ban noncompete agreements and allow workers to recover civil damages from employers who impermissibly imposed restrictions, law firm Schulte Roth & Zabel said a battle over the legislation could continue in 2024.

“New York and other states may pass legislation limiting or prohibiting noncompetes and similar restrictive covenants; increasingly courts are reviewing restrictive covenants more strictly,” Schulte Roth & Zabel said in a statement, also mentioning the pending FTC ruling. “In light of the current environment, we are recommending that employers… that require their partners and employees to agree to restrictive covenants, consider revisiting their approach.”

The FTC said noncompete clauses lower wages and limit competition. Banning them could increase earnings by as much as $296 billion a year, according to the FTC. It took public comment on noncompete agreements until mid-April but has not yet decided the rule.

Marsh McLennan Chief Executive Officer John Doyle has said his company is monitoring the proposal. “We think Marsh McLennan is an employer of choice in a very competitive industry.” Describing the market as “pretty active for talent,” he said the group is a “net winner”.

Noncompete agreements are among the most litigated issues in employment law, according to Hartford, which nonetheless suggests them to prevent most-valued employees from moving to a competitor or establishing their own company.

Within the industry, insurance brokers in particular have instigated legal action to head off or challenge employee departures to competitors.

A Marsh & McLennan Cos. unit in 2020 sued rival broker Cobbs Allen Capital LLC, claiming it poached about 30 of Marsh employees and encouraged them to allegedly pilfer Marsh’s trade secrets and clients. Marsh claims it lost $2 million from the exodus, which occurred just before Marsh acquired JLT Specialty Insurance Services Inc.

When rival Arthur J. Gallagher & Co. acquired Willis Re in a $3.25 billion deal, Gallagher and Willis Towers Watson entered into a two-year noncompete pact, agreeing not to recruit or poach employees from each other.

With that agreement nearing an end, WTW CEO Carl Hess recently said his company was considering a return to reinsurance broking.

Other states that currently largely ban the practice are Colorado, Minnesota, North Dakota and Oklahoma.