New York City Council considering bills that include unique ban on worker noncompete agreements
The City Council is considering three bills that would impact the future of noncompete agreements. Credit: LightRocket via Getty Images/Roberto Machado Noa
The New York City Council is considering passing one of the nation’s strongest prohibitions against employee noncompete agreements, legislation that would also void any preexisting ones.
The move comes months after Gov. Kathy Hochul vetoed similar legislation that would have applied statewide. That bill was killed amid fierce opposition from business groups, Wall Street and the health care industry. The opponents argued that noncompetes help protect employees taking intellectual property and clients to a competitor.
Now before the council are three related bills, each introduced late last month. The most sweeping of them would essentially ban noncompete agreements under any circumstances for workers in the city. The others are narrower, covering noncompetes for freelance workers and low-wage employees.
“It’s important to make sure that we are removing any type of barriers for people to be able to get gainful employment, and that is something that, functionally, can prevent people from being able to move on to another position where they may earn more,” Councilwoman Selvena N. Brooks-Powers said in an interview. The Queens Democrat is the prime sponsor of the legislation to enact a sweeping ban.
A noncompete agreement is a contract between an employer and a worker that generally blocks the employee from doing work for a competitor, or from starting a competing business, covering a certain time period and geographic area.
All 50 states restrict noncompete clauses between employers and workers, according to a filing last year in the Federal Register. But the breadth of the restrictions varies widely from state to state. For example, New York State bans noncompetes in the broadcast industry.
For more than a century, there’s been a noncompete ban in California under most circumstances, and there are similar laws in Oklahoma, Minnesota and North Dakota. But in those jurisdictions, there is an exception for the sale of business, according to Joseph O'Keefe, a labor and employment partner at the law firm Proskauer. (An example of the sale-of-business exception: a buyer of a hot dog stand seeking to have the seller, as part of the sale terms, be prohibited from opening up a competing hot dog stand a few blocks away.)
But the council bill proposing a complete ban of noncompetes contains no such exception, O'Keefe said.
“The city’s proposal would be unique in its sweep. It would ban noncompete agreements, without exception, and void all existing noncompetes,” said O’Keefe, who is co-head of the firm’s restrictive covenants, trade secrets and unfair competition group.
An analysis by the New York State Bar Association — citing a survey by the left-leaning Economic Policy Institute and Cornell University — said that between 27.8% and 46.5% of private-sector workers in the United States are subject to noncompetes, and those agreements cover 18.1% of all workers. In New York State, 44.2% of workplaces subject employees to noncompetes, the analysis says.
The most restrictive of the bills is Introduction No. 140, which would ban employers from entering into noncompetes with employees and rescind any noncompete that predates when the law becomes effective. The punishment for an employer would be $500 for each violation. The other two bills would be superfluous if the first bill were to pass, according to an analysis co-written by O'Keefe.
The other bills are Intro. 146, which would ban employers from forcing low-wage applicants to enter into covenants not to compete as a condition of employment, and Intro. 375, which bans noncompetes for freelancers unless the hiring party agrees to compensate the worker during the term of the agreement.
“My bill applies to freelancers, who by their very nature are self-employed and should be allowed the freedom that comes with that,” Councilman Keith Powers said in a text message. The Manhattan Democrat is that bill’s prime sponsor.
In January 2023, the Federal Trade Commission under President Joe Biden proposed a nationwide rule to prohibit noncompetes. The rule-making process is still pending. The commission argues that the rule, if enacted, would increase American workers' earnings between $250 billion and $296 billion per year.
Asked for comment about the state legislation, Avi Small, a spokesman for Hochul, referred to a veto memo the governor signed on Dec. 22.
The memo notes that Hochul had proposed banning noncompete agreements for anyone making below the median wage in New York, but that a “reasonable compromise” couldn't be reached regarding the more sweeping bill passed by the legislature.
“New York has a highly competitive economic climate and is home to many different industries,” the memo says. “These companies have legitimate interests that cannot be met with the Legislation's one-size-fits-all approach.”
Patrick Bailey, a spokesman for the Business Council of New York State, called the veto “a huge win for businesses and New York State.”
“New York already suffers from out migration which is draining our tax base,” Bailey wrote in an email, referring to statistics such as those in December from the U.S. Census Bureau, showing that the state had continued again to see the largest 12-month population loss of any state — just over 101,000.
“Passage of Noncompete would have been another signal to businesses to leave New York,” Bailey wrote in the email.
As for the council bills, the legislation is still in its infancy and will be subject to a committee hearing, review, public comment — and if passed out of committee and then by the full council, the mayor’s signature or veto.
A spokesperson for Mayor Eric Adams, Amaris Cockfield, said Thursday evening that the administration would review the legislation.
State Sen. Sean Ryan, a Democrat from Western New York who sponsored the statewide noncompete bill that Hochul vetoed, argues that allowing noncompetes is bad for the economy — particularly in the technology industry, citing California’s Silicon Valley, where noncompetes are banned.
For example, Ryan said, noncompetes are unfair for workers in health systems that require employees to agree not to work for a competitor within a certain geographic area.
“If you don’t like your job, you have to leave the city,” Ryan said. “You can’t work anywhere else.”
Ryan is planning to reintroduce it and hopes passage of the city legislation would help his case for a statewide law.
“Certainly New York City, a major — the major — economic player in New York State, if they passed it,” Ryan said, “it signals growing support for banning noncompetes.”
The New York City Council is considering passing one of the nation’s strongest prohibitions against employee noncompete agreements, legislation that would also void any preexisting ones.
The move comes months after Gov. Kathy Hochul vetoed similar legislation that would have applied statewide. That bill was killed amid fierce opposition from business groups, Wall Street and the health care industry. The opponents argued that noncompetes help protect employees taking intellectual property and clients to a competitor.
Now before the council are three related bills, each introduced late last month. The most sweeping of them would essentially ban noncompete agreements under any circumstances for workers in the city. The others are narrower, covering noncompetes for freelance workers and low-wage employees.
Worker mobility
“It’s important to make sure that we are removing any type of barriers for people to be able to get gainful employment, and that is something that, functionally, can prevent people from being able to move on to another position where they may earn more,” Councilwoman Selvena N. Brooks-Powers said in an interview. The Queens Democrat is the prime sponsor of the legislation to enact a sweeping ban.
WHAT TO KNOW
- The New York City Council is considering passing one of the nation’s strongest prohibitions on employee noncompete agreements.
- A noncompete agreement generally prohibits an employee from doing work for the employer's competitor, or from starting a competing business.
- The most restrictive city bill would ban employers from entering into noncompetes with employees and rescind any noncompete that predates when the law becomes effective.
A noncompete agreement is a contract between an employer and a worker that generally blocks the employee from doing work for a competitor, or from starting a competing business, covering a certain time period and geographic area.
All 50 states restrict noncompete clauses between employers and workers, according to a filing last year in the Federal Register. But the breadth of the restrictions varies widely from state to state. For example, New York State bans noncompetes in the broadcast industry.
For more than a century, there’s been a noncompete ban in California under most circumstances, and there are similar laws in Oklahoma, Minnesota and North Dakota. But in those jurisdictions, there is an exception for the sale of business, according to Joseph O'Keefe, a labor and employment partner at the law firm Proskauer. (An example of the sale-of-business exception: a buyer of a hot dog stand seeking to have the seller, as part of the sale terms, be prohibited from opening up a competing hot dog stand a few blocks away.)
Noncompetes, no exceptions
But the council bill proposing a complete ban of noncompetes contains no such exception, O'Keefe said.
“The city’s proposal would be unique in its sweep. It would ban noncompete agreements, without exception, and void all existing noncompetes,” said O’Keefe, who is co-head of the firm’s restrictive covenants, trade secrets and unfair competition group.
An analysis by the New York State Bar Association — citing a survey by the left-leaning Economic Policy Institute and Cornell University — said that between 27.8% and 46.5% of private-sector workers in the United States are subject to noncompetes, and those agreements cover 18.1% of all workers. In New York State, 44.2% of workplaces subject employees to noncompetes, the analysis says.
The most restrictive of the bills is Introduction No. 140, which would ban employers from entering into noncompetes with employees and rescind any noncompete that predates when the law becomes effective. The punishment for an employer would be $500 for each violation. The other two bills would be superfluous if the first bill were to pass, according to an analysis co-written by O'Keefe.
The other bills are Intro. 146, which would ban employers from forcing low-wage applicants to enter into covenants not to compete as a condition of employment, and Intro. 375, which bans noncompetes for freelancers unless the hiring party agrees to compensate the worker during the term of the agreement.
“My bill applies to freelancers, who by their very nature are self-employed and should be allowed the freedom that comes with that,” Councilman Keith Powers said in a text message. The Manhattan Democrat is that bill’s prime sponsor.
Biden proposal
In January 2023, the Federal Trade Commission under President Joe Biden proposed a nationwide rule to prohibit noncompetes. The rule-making process is still pending. The commission argues that the rule, if enacted, would increase American workers' earnings between $250 billion and $296 billion per year.
Asked for comment about the state legislation, Avi Small, a spokesman for Hochul, referred to a veto memo the governor signed on Dec. 22.
The memo notes that Hochul had proposed banning noncompete agreements for anyone making below the median wage in New York, but that a “reasonable compromise” couldn't be reached regarding the more sweeping bill passed by the legislature.
“New York has a highly competitive economic climate and is home to many different industries,” the memo says. “These companies have legitimate interests that cannot be met with the Legislation's one-size-fits-all approach.”
Patrick Bailey, a spokesman for the Business Council of New York State, called the veto “a huge win for businesses and New York State.”
“New York already suffers from out migration which is draining our tax base,” Bailey wrote in an email, referring to statistics such as those in December from the U.S. Census Bureau, showing that the state had continued again to see the largest 12-month population loss of any state — just over 101,000.
Veto a signal to stay
“Passage of Noncompete would have been another signal to businesses to leave New York,” Bailey wrote in the email.
As for the council bills, the legislation is still in its infancy and will be subject to a committee hearing, review, public comment — and if passed out of committee and then by the full council, the mayor’s signature or veto.
A spokesperson for Mayor Eric Adams, Amaris Cockfield, said Thursday evening that the administration would review the legislation.
State Sen. Sean Ryan, a Democrat from Western New York who sponsored the statewide noncompete bill that Hochul vetoed, argues that allowing noncompetes is bad for the economy — particularly in the technology industry, citing California’s Silicon Valley, where noncompetes are banned.
For example, Ryan said, noncompetes are unfair for workers in health systems that require employees to agree not to work for a competitor within a certain geographic area.
“If you don’t like your job, you have to leave the city,” Ryan said. “You can’t work anywhere else.”
Ryan is planning to reintroduce it and hopes passage of the city legislation would help his case for a statewide law.
“Certainly New York City, a major — the major — economic player in New York State, if they passed it,” Ryan said, “it signals growing support for banning noncompetes.”
Matthew Chayes, a Newsday reporter since 2007, covers New York City.
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