New York City proposes multiple bills to ban non-competes

This development follows the New York state legislature’s proposed non-compete ban, which was recently vetoed by the governor in December 2023, and the Federal Trade Commission (FTC)’s proposed nation-wide ban of non-competes, which is awaiting approval this year.

Overview of the bills

The three proposed bills aim to restrict or eliminate the use of non-competes at varying levels:

1. Bill 0140-2024 – Total ban on non-competes

The most expansive of the three, Bill 140 would impose a ban on non-competes with workers generally, as did the failed New York state bill. If enacted, Bill 140 would prohibit employers from entering into or attempting to enter into any post-termination non-compete agreement with workers in New York City, including paid or unpaid employees and independent contractors.

Bill 140 would have retroactive effect, requiring employers to rescind any non-competes that pre-date the effective date of the bill. If found in violation of Bill 140, employers could be subject to civil penalties of $500 per violation.

2. Bill 0146-2024 – Ban on non-competes for low-wage workers

Bill 146 would ban non-competes with low-wage employees, which include “clerical or other workers” under New York State Labor Law but exclude manual workers, railroad workers, commission salespeople, and bona fide executive, administrative or professional employees earning over $1,300 per week.

Bill 146 does not have a retroactive impact on existing non-competes and would apply only to non-competes entered into after the effective date of the law.

3. Bill 0375-2024 – Ban on non-competes for freelance workers

Bill 375 would ban non-competes with "freelance workers" (defined as any person or one-person organization retained as an independent contractor to provide services in exchange for compensation), unless the hiring party compensates the freelance worker with a reasonable and mutually agreed amount for the non-compete period either bi-weekly or monthly.

Unlike the other two bills, Bill 375 would grant a private right of action, allowing freelancers to pursue legal action to void a violative non-compete and recover statutory damages of $1,000 and reasonable attorney fees. In addition, violators of the bill would face civil penalties of $500 per violation, and for a pattern or practice of violations, a civil penalty of up to $25,000.

Bill 375 would not have a retroactive impact on existing non-competes and would apply only to non-competes entered into after the effective date of the law.

What to expect

The three bills still need to be passed by the rest of the New York City Council and must be approved by Mayor Eric Adams. Any bill that passes would become effective 120 days thereafter.

Many commentators  are not optimistic about any of the bills’ passage, noting that the New York City Council had proposed similar laws in the past that were ultimately not enacted.

In the event that any of these bills passes, substantial changes to many employers' non-compete or other restrictive covenant practices would likely be required.

Employer considerations

• Currently in New York state, non-competes will continue to be enforceable as long as they are reasonable and protect a legitimate business interest.
• Employers with operations in the U.S. should be reminded of the current non-compete rules in the states in which they operate. For instance, non-competes are still mostly unenforceable in certain states, such as California, Minnesota, North Dakota, and Oklahoma, and are subject to restrictions in many others.
• Employers should stay up-to-date on further developments on non-compete rules and seek legal counsel to ensure compliance in the changing landscape, including a possible reintroduction of the failed New York state bill and the FTC’s vote on the proposed nation-wide ban on non-competes in 2024.
• Employers may wish to review their current non-competes and other restrictive covenants to consider their scope and applicability, particularly based on the employee’s seniority and pay level, in light of possible wage-based exemptions.

Allen & Overy LLP is continuing to monitor updates on non-compete agreements. Please feel free to reach out to us with any questions or if you would like to know more about how legislation relating to non-competes may affect your business.