How Hedge Funds Skirt California's Noncompete Ban, and What It Means for NY

Over the summer, Wall Street was abuzz over a bill passed by New York lawmakers that would ban the practice of restraining employees from working for competitors. While many companies oppose the proposed law, which sits on Gov. Kathy Hochul's desk, hedge funds in particular risk having their operations upended.

These firms, especially ones that invest millions building trading algorithms from scratch, have grown accustomed to barring employees from working for competitors, forcing them to vacate the industry through onerous noncompetition clauses to their employment contracts. In the quant-trading realm, these restrictions can last two years, and ugly battles over the practice have at times spilled into public view after trading firms have sued to enforce their vise grip on departing staff.

That's partly why so few quantitative trading firms reside in California, whose labor-friendly laws have long favored employee mobility and competition. The state first banned noncompetition agreements in the 1800s.
The practice has become so entrenched in quant trading, according to a California employment attorney, that some New York finance clients are "gobsmacked" and "apoplectic" when informed they cannot legally impose a noncompete in the state.