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It's No Competition: New York City Legislature Proposes Sweeping Non-Compete Bills

March 8, 2024

It's No Competition: New York City Legislature Proposes Sweeping Non-Compete Bills

March 8, 2024

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The far-reaching bill seeks to apply a prohibition on non-compete agreements to all individuals who work for an employer, whether paid or unpaid, and includes employees as well as independent contractors.

On February 28, 2024, the New York City Council introduced a trio of legislative proposals aimed to drastically limit the ability of New York City employers to enter into or enforce non-compete agreements with their workers.

The Broadest Bill Prohibiting all Non-Compete Agreements

The most sweeping of the bills, Int. 0140-2024, is aptly titled “Prohibition of non-compete agreements.” If passed, the legislation would entirely prohibit businesses in New York City from entering into, or even maintaining, non-compete agreements with any of their workers. All employers would be covered by the bill, as the proposed law defines “employer” to mean “a person that hires or contracts with a worker to work for a person.” The far-reaching bill seeks to apply a prohibition on non-compete agreements to all individuals who work for an employer, whether paid or unpaid, and includes employees as well as independent contractors.

The bill vaguely defines a non-compete agreement as “an agreement between an employer and a worker that prevents, or effectively prevents, the worker from seeking or accepting work for a different employer, or from operating a business, after the worker no longer works for the employer.”

The bill provides that:

  • Employers are prohibited from entering or attempting to enter into non-compete agreements with their workers;
  • Employers must rescind any non-compete agreements that they previously entered into with their workers before the bill goes into effect (i.e., within 120 days after it becomes law); and
  • Non-compete agreements entered into or maintained that violate the bill are not enforceable.

The proposed legislation would also prohibit employers from representing to any worker that the worker is subject to a non-compete provision where the employer has no good faith basis to believe so. The bill contains no carveout for non-competes with short temporal scopes, and does not explicitly define its geographic reach or potential application to remote workforces. It would presumably apply to all New York City employers and workers, regardless of the size of a business and the role and/or wages of a given worker.

While there is no private right of action included in the proposed law, employers would be subject to a $500 civil penalty for each violation of this bill. The NYC Office of Labor Standards would be responsible for enforcement. 

The Bill Prohibiting Non-Competes with Low-Wage Employees

The NYC Council also proposed two sister pieces of legislation. The first, Int. 0146-2024, would prohibit employers from requiring low-wage employees to enter into covenants not to compete. It would also require employers to notify (in writing and at the beginning of the hiring process) potential employees who are not low-wage employees that they may be subject to a covenant not to compete. The legislation defines a “covenant not to compete” as an agreement entered into after the law’s passage between an employer and employee that restricts the employee from performing: (i) work for an employer not a party to the agreement for a specified period of time; (ii) work in a specified geographical area for an employer not a party to the agreement; or (iii) work for an employer not a party to the agreement that is similar to such employee’s work for the employer who is a party to the agreement. The law defines “low-wage employee” as a “clerical and other worker” as that term is defined in the New York Labor Law. The term includes all employees who are not manual workers, railroad workers or commission salesmen, and also excludes executive, administrative and professional workers who earn more than: (i) $900 a week (until March 13, 2024); and/or (ii) $1,300 a week (beginning on March 13, 2024).

This bill does not specify any penalty per violation, but provides that the NYC Office of Labor Standards would create rules before the effective date (120 days after it becomes law).

The Bill Prohibiting Non-Competes for Freelance Workers

Lastly, the NYC Council introduced Int. 0375-2024, which seeks to regulate covenants not to compete for freelance workers in New York City. Aiming to do away with unreasonable restrictions on freelancers being able to find new work, the bill seeks to prohibit persons from requiring freelancers to enter into non-compete agreements unless the hiring party agrees to compensate the freelance worker with a “reasonable and mutually agreed upon sum,” on a biweekly or monthly basis, during any period in which the non-compete agreement would restrict the freelancer from seeking other work. “Freelance workers” includes any person or organization composed of no more than one person (whether or not incorporated or using a trade name) that is hired or retained as an independent contractor by a hiring party to provide services for compensation, with a number of exclusions (such as sales representatives, contract lawyers, licensed medical professionals and those admitted to FINRA membership).

This bill is notably the only one of the three providing a private right of action that would allow freelancers to seek a declaratory judgment finding a non-compete agreement void and an award of attorneys’ fees. It also provides for an award of statutory damages of $1,000 and a civil penalty of $500 per violation. If reasonable cause exists to believe a hiring party has engaged in a pattern or practice of violating the law, the NYC Corporation Counsel would also be able to investigate and sue hiring parties to seek the maximum civil penalty of $25,000. This bill, like the other two, would become effective 120 days after it becomes law.

What This Means for Employers

The broad-sweeping nature of the New York City bills is unprecedented. Shortly before the new year, Governor Kathy Hochul vetoed a bill that would have banned almost all non-compete provisions in New York State. That bill contained several exceptions. For example, the restrictions of that bill would not have applied to “fixed term contracts.”

Notably, none of the three proposed New York City bills explicitly address or appear to address or impact agreements that prohibit disclosure of trade secrets or confidential and proprietary client information or agreements prohibiting employees from soliciting clients of an employer that the covered individuals learned about while working for the employer.

These New York City bills have the potential to severely impede employers from protecting their business interests and their ability to stop employees from leaving and subsequently competing against them. However, given their extremely broad language and lack of carveouts, it remains likely the bills will not pass as drafted. Regardless, Duane Morris will continue to monitor developments concerning non-compete agreements in New York City and New York State.

For More Information

If you have any questions about this Alert, please contact Eve I. Klein, Katelynn Gray, Maria Cáceres-Boneau, Lawrence H. Pockers, Shannon Hampton Sutherland, Gregory Slotnick, Liran Messinger, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group, any of the attorneys in our Non-Compete and Trade Secrets Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.