Last summer, the New York State legislature made waves when it passed a bill that effectively would have banned noncompete agreements. New York’s Governor vetoed that bill in late December 2023. This year, however, it is expected that the legislature will consider, and maybe pass, a less draconian bill that the Governor may be more likely sign. Instead of an outright ban, such a bill might limit the use of noncompetes by, for example, prohibiting noncompetes only for certain types of employees, such as low wage earners.
While the business and legal communities await the state legislature’s next move, New York City has jumped into the fray, with the City Council introducing three bills on February 28, 2024 that would ban or limit the use of noncompetes by employers in the Big Apple. In something of an experiment in determining what types of noncompete limitations can garner the most support, the three bills approach the issue in different ways.
The first, Bill No. Int 0140-2024, would simply bar employers from entering into noncompetes with employees, both on a going forward basis and also by rescinding any existing noncompete agreements. Employers would be liable for a $500 civil penalty for each violation of this bill.
The second, Bill No. Int 0146-2024, focuses on “low-wage employees” (i.e., employees other than those that are employed in a bona fide executive, administrative, or professional capacity and earn at least $1,300 per week). Noncompetes for low-wage employees would be prohibited. For other employees, the employer would need to disclose at the beginning of the hiring process that the employees may be subject to a noncompete. Enforcement under this bill would be by the NYC Office of Labor Standards.
The third, Bill No. Int 0375-2024, would prohibit noncompetes for freelance workers, unless the worker is compensated by the hiring party during the noncompete period. A freelance worker is defined as a person who is hired or retained as an independent contractor to provide services in exchange for compensation and does not include (i) a sales representative under New York Labor Law Section 191, (ii) a person engaged in the practice of law, (iii) a licensed medical professional, or (iv) any individual, partnership, corporation, or other entity admitted to membership in the Financial Industry Regulatory Authority. The bill would create a private right of action for the freelance worker to seek a declaratory judgment voiding the noncompete, statutory damages of $1,000, and reasonable attorneys’ fees. It also would allow the City’s Corporation Counsel to seek a civil penalty of up to $25,000 for a pattern or practice of violations.
It is too early to tell which, if any, of these bills may advance before the City Council. Their introduction, however, is just the latest example of the continuing vigor of efforts on national, state, and local stages to restrict the use of noncompetes. We will continue to monitor and provide updates on these developments.
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