Gus Carlson is a U.S.-based columnist for The Globe and Mail.
Why is it that, time and again, governments prove the definition of insanity is doing the same thing over and over again and expecting different results?
For businesses in New York, it’s not a rhetorical question. In a state that has seen rising taxes and constricting regulation drive out hundreds of companies and thousands of jobs in the past five years, including big financial services firms managing almost US$1-trillion in assets, you might think legislators would get the hint that their strategy of continuing the beatings until morale improves isn’t working.
Clearly, they don’t get it – or they don’t care, as long as they are true to their political ideology. In yet another antibusiness move, the state legislature has passed a bill that if signed into law by Governor Kathy Hochul will effectively ban non-compete agreements governing workers’ post-employment mobility. If enacted, New York would join California, North Dakota, Oklahoma and Minnesota in limiting these pacts. Ontario enacted a similar law in 2021.
If you have been around the corporate world a while you may think this is a tempest in a teapot. Traditionally, non-competes applied to a small workplace elite. Corporate executives with knowledge of organizational secrets, proprietary processes and innovative strategies often have compensation packages with provisions saying that if they quit or get fired, they can’t work for an industry rival.
That has changed. More employers are requiring workers at many organizational levels to sign such pacts. About one in five U.S. workers – nearly 30 million people – are currently bound by non-compete agreements, the U.S. Federal Trade Commission says.
That shift, driven in part by the penchant for job-hopping among modern workers, has emboldened legislators in New York and elsewhere to green-light bans in the name of enabling worker mobility. Lawmakers seem to forget, however, that having more mobility is a somewhat pyrrhic victory if the companies that create jobs are fleeing the state, as is the case in New York. No matter how mobile you are, you can’t move to a job that no longer exists.
The spectre of this new regulation has drawn heavy fire from businesses. The loudest objections are from Wall Street firms that see non-compete agreements as essential to protect investment strategies and dissuade highly paid, highly trained employees from jumping ship to competitors with valuable inside and client information.
Financial services companies have been big contributors to a new advertising campaign, launched by the Public Policy Institute of New York State Inc., aimed at killing the legislation.
New York can hardly afford to further alienate Wall Street with more ill-considered legislation. A recent Bloomberg survey showed that more than 150 companies have fled the city and state since 2019 and taken almost a trillion dollars in assets, thousands of jobs and precious tax revenue with them.
Among the big names: AllianceBernstein AB-N moved from Manhattan to Nashville in 2022, taking almost US$700-billion in assets and 1,000 jobs with it, saving itself about US$80-million a year. Icahn Capital, Elliott Management and ARK Investment Management all moved to Florida, taking along more than US$100-million in assets. Goldman Sachs GS-N has invested heavily in offices in South Florida and Dallas, where costs are about 40 per cent less than in New York.
The consequences of the exodus could be disastrous. An October report by the New York State Comptroller’s office showed that Wall Street accounted for 16 per cent of all economic activity in New York City and 7.3 per cent of economic activity statewide last year. In terms of one sector’s role in a state economy, the latter figure is well above the national average of 1.7 per cent.
Furthermore, the migration of financial services firms to more business-friendly states has dire tax implications for the city and state. Last year, financial firms paid US$5.4-billion in New York taxes and accounted for nearly a quarter of all personal income taxes, the Comptroller’s report said. This year, the report said, tax revenue from the industry faces a “significant decline” as “jobs have shifted to lower-cost regions.”
“It’s really death by a thousand cuts in New York State,” said Justin Wilcox, the executive director of Upstate United, a business and taxpayer advocacy group. “What we see is fees, taxes, surcharges on just about everything, and over time that adds up, right?”
Right, and while this latest cut may seem small to some, when combined with the others it will draw more blood. And as long as state lawmakers continue to ignore the consequences of their actions, they have no one to blame but themselves for the economic risk they have created.