ARTICLE
28 April 2024

Step Aside, FTC: NYC To Banish Non-Competes

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Axinn Veltrop & Harkrider

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Axinn combines the skills, experience and dedication of the world’s largest firms with the focus, responsiveness, efficiency and attention to client needs of the best boutiques. The firm was established with a common vision: provide the highest level of service and strategic acumen in antitrust, intellectual property and high-stakes litigation.
The FTC's proposed ban on labor non-competes has loomed since January 2023, with a vote now scheduled for April 23, 2024 in a special Open Commission Meeting.
United States New York Antitrust/Competition Law

The FTC's proposed ban on labor non-competes has loomed since January 2023, with a vote now scheduled for April 23, 2024 in a special Open Commission Meeting. New York City recently joined the growing number of states that are seeking to enact their own ban on labor non-competes.

On February 28, 2024, the New York City Council introduced three separate bills to ban or limit non-competes for employees and independent contractors in New York City.

  1. Introduction 140 would prohibit all non-competes prospectively and rescind existing non-competes retroactively, and subject employers to a civil penalty of $500 per violation. Introduction 140 does not contain any carveouts--even of limited scope--for individuals who may possess trade secrets or other competitively sensitive information. It is a blanket ban to solve perceived problems about labor mobility and competitiveness in New York City.
  2. Introduction 146 would prohibit the use of non-competes with "low-wage employees," defined as a clerical or other worker under New York's labor laws (i.e., all employees other than manual workers, railroad workers, commission salesman, and persons "employed in a bona fide executive, administrative or professional capacity") earning less than $1,300 weekly (approximately $67,600 annually). That threshold is significantly lower than the $250,000 threshold that business groups lobbied for in connection with the Statewide non-compete ban that Governor Kathy Hochul vetoed (discussed further below). The bill also establishes notification requirements for non-competes with non-low-wage employees, but does not retroactively rescind non-competes.
  3. Finally, Introduction 375 would prohibit the use of non-competes in contracts for freelance work unless the hiring party compensates the freelancer for the duration of the non-compete. It is notable in that it effectively endorses the concept of gardening leave.

All three bills under consideration are limited to the employer-employee relationship and have no impact on non-competes incidental to M&A activity. If any of the bills are passed, they would become effective 120 days after signing.

New York City's efforts follow on the heels of the failed Statewide ban on non-competes. Governor Hochul announced an initiative in January 2022 to strengthen workers' rights, including banning non-competes for workers making below the median wage. The New York legislature passed a non-compete ban in June 2023, but with no compensation threshold and limited exceptions. The legislation was also silent about whether it prohibited non-competes between businesses related to M&A activity--reportedly a point of contention. Governor Hochul ultimately vetoed that bill in December following a reported breakdown in negotiations with the legislature about where to set a compensation threshold and how bonuses and stock options should be taken into consideration.

If New York City succeeds in banning labor non-competes, it will become the second largest economic center of the country to do so, after California. Not only has California long banned non-competes, the state enacted legislation in September 2023 and October 2023 to strengthen its prohibitions on non-competes. Non-competes could be banned in states and cities comprising over a third of U.S. GDP. Last month, Washington enacted legislation to expand the definition of a non-compete and limit the use of non-solicitation provisions. And proposed bans--complete or with carveouts--are pending in Illinois, Maine, Massachusetts, and other states.

As a result, national businesses may reconsider their use of non-competes independent of the FTC's proposed rule. Even if the FTC's final rule is challenged and struck down, the FTC's goal to ban non-competes may still be achieved through a patchwork of state and local legislation affecting major commercial hubs like New York City.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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