Joining an emerging trend of legislative and regulatory hostility towards non-compete agreements, on February 28, 2024, the New York City Council introduced three new bills proposing restrictions on non-compete agreements in New York City. Int. No. 140 proposes an outright ban on non-compete agreements for all workers in New York City. Int. No. 146 and Int. No. 375 focus on restricting non-compete agreements for low-wage employees and freelance workers (collectively the “NYC Bills”).
As previously reported, New York Governor Kathy Hochul recently vetoed a bill proposing a near-total ban on non-compete agreements in New York State. The NYC Bills mark the first local laws in New York proposing restrictions on non-compete agreements since Governor Hochul’s veto. It remains to be seen whether this local legislation will become law in New York City.
Bill Int. No. 140
Bill 140 proposes a broad ban on non-competes for New York City workers. Bill 140 would bar employers from making non-compete agreements with any worker in New York City and cancel non-compete agreements entered before the law takes effect. The ban would not be limited to non-compete agreements with employees. “Worker” is broadly defined to include any “natural person who works, whether paid or unpaid, for an employer. Such term includes an individual classified as an independent contractor.” Bill 140 further prohibits employers from representing to a worker that they are subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete.
Under the proposed law, the NYC Office of Labor Standards would enforce the ban and employers found in violation may be subject to a civil penalty of $500 per violation.
If Bill 140 becomes law it will render superfluous Bills 146 and 375, discussed below, which offer alternatives to a total ban.
Bill Int. No. 146
As an alternative to a total ban, Bill 146 seeks to ban non-compete agreements for “low-wage employees,” defined as a “clerical or other worker” as defined in §190 of the New York Labor Law, which excludes manual workers, railroad workers, commissioned salespersons, and persons in a “bona fide executive, administrative or professional capacity” whose earnings exceed $1,300 (effective March 13) per week.
Notably, the proposed legislation includes a disclosure requirement for prospective non-low wage employees, requiring that employers disclose in writing that they may be subject to a non-compete agreement. Employers are prohibited from requiring such employees to enter into a non-compete agreement unless this disclosure is made.
Bill Int. No. 375
Bill 375 would limit non-competes for freelance workers. The Bill describes “freelance worker” as a person or a single-person organization hired or contracted to provide services for payment. Bill 375 excludes some types of workers from the meaning of “freelance worker,” such as: sales representatives as defined by labor law, lawyers, licensed medical professionals, and members of the Financial Industry Regulatory Authority.
This bill would ban an employer from entering a non-compete agreement with a freelance worker, unless the agreement also makes the employer pay a “reasonable” and “mutually agreed upon” amount to the freelance worker every two weeks or every month while the non-compete lasts. The non-compete will be null and void if the employer does not pay.
Bill 375 provides for potential civil penalties of $500 per violation and a private right of action for aggrieved freelance workers to obtain a declaratory judgment voiding the non-compete, attorney’s fees and $1,000 in damages. Additionally, the city can commence a civil action challenging a pattern of violations to obtain a $25,000 penalty.
We will continue to monitor and report on the progress of the NYC Bills. If any of the Bills are passed and become law, they would take effect 120 days after passage.