Noncompete News: Will New York City's Noncompete Ban Beat The FTC Final Rule To The Punch?

Ford & Harrison LLP


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Executive Summary: As we recently reported, the Federal Trade Commission (FTC) issued its long-awaited final rule on April 23, 2024, banning virtually all noncompetition agreements between employers and workers.
United States Employment and HR
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Executive Summary: As we recently reported, the Federal Trade Commission (FTC) issued its long-awaited final rule on April 23, 2024, banning virtually all noncompetition agreements between employers and workers. The final rule was officially published in the Federal Register on May 7, 2024, and is scheduled to take effect September 4, 2024. However, lawsuits challenging the final rule were filed almost simultaneously, leaving many employers in limbo. In the first lawsuit challenging the FTC final rule, U.S. District Court Judge Ada Brown has indicated she may rule as early as July 3, 2024 on that plaintiff's motion for a stay of the rule's effective date and a preliminary injunction prohibiting enforcement of the rule. See Ryan, LLC v. Federal Trade Commission (N.D. Tex. May 7, 2024). Given the legal challenges to the FTC's rule, employers should know New York City's recent proposed challenge to using noncompete agreements, Bill 140, is more onerous to employers than the FTC rule.

How Broad Is New York City's Bill 140?

The end of 2023 saw New York's governor veto a proposed state law banning noncompetes throughout New York state, with few exceptions. That triggered the New York City Council to introduce Int. No. 140 on February 28, 2024, a sweeping total ban on noncompete agreements between employers and workers within New York City's five boroughs.

As drafted, Bill 140 is a local law amending the Administrative Code of the City of New York to prohibit the use of noncompete agreements, defined as any "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 term "worker" is broadly defined and makes no distinction between low-wage workers, independent contractors, volunteers, freelancers, and senior or C-suite executives.

If passed, Bill 140 will be retroactive and require employers to affirmatively "rescind" any noncompete by the date the law goes into effect. It shall be unlawful for any employer to represent to a worker that the worker is subject to a noncompete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable noncompete agreement. Bill 140 takes effect 120 days after it becomes law.

Bill 140 provides for a civil penalty of $500.00 per violation to be enforced by the Office of Labor Standards. It is unclear whether a private cause of action will be allowed under Bill 140.

How Much Broader Is Bill 140 Than the FTC Ban?

Bill 140 is broader than the FTC ban in two important aspects:

  • No exception for "senior executives." The FTC final rule allows employers to enforce existing noncompetes against "senior executives" in a "policy-making" position who earn at least $151,164 yearly. Under Bill 140, all existing and future noncompetes are banned, despite the employee's level, role, or duties within the company.
  • Recission, not notice. The FTC rule requires employers to provide notice to workers with existing noncompetes that they are no longer enforceable—like what California state law already requires. Bill 140 is retroactive and requires employers to affirmatively rescind all past noncompetes. Mere notice is insufficient.

What Are the Exceptions To Bill 140?

Like the FTC ban, Bill 140 also does not stop employers from using other agreements to protect their legitimate business interests, including:

  • Customer and employee nonsolicitation agreements (unless written so broadly as to "effectively" prevent the worker from accepting new employment)
  • Garden leave agreements (because Bill 140 only applies "after the worker no longer works for the employer")
  • Noncompetes within sale of business contracts (unless the seller becomes an employee of the purchasing employer)
  • Confidentiality and nondisclosure agreements
  • Agreements to repay the costs of employee training
  • Employment agreements for a fixed term of years

The Bottom Line

Because of pending litigation, it is possible the FTC final rule will not take effect this year, if at all. It will be prudent for New York City employers to carefully track Bill 140 as it progresses through the committees of the New York City Council.

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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