After New York Gov. Kathy Hochul (D) in January vetoed a bill that would have banned most noncompete agreements in the state, lawmakers in New York City are considering a ban within city limits.
The legislation mirrors the state’s proposal by prohibiting noncompete agreements and certain restrictive covenants and would require employers to rescind all existing noncompete agreements. Employers that violate the terms of the city-wide ban would be subject to a potential $500 civil penalty per violation.
“Any noncompete agreement entered into in violation of the bill would be made unenforceable,” according to attorneys at Ogletree Deakin. “The bill would require employers to rescind any noncompete agreements entered into with employees no later than the date that the bill would go into effect, which would be ‘120 days after it becomes law.’”
The bill does not contain an exception for high-income earners or executives.
“This New York City bill, like the New York state bill, is overly broad and lacks the carveouts (e.g. a sale of business exception) and other limitations … that led in part to Gov. Hochul declining to sign the state bill into law,” wrote attorneys Geri L. Haight and Talia R. Weseley of Mintz Law Firm.
As a safety net of sorts should the legislation fail, according to Haight and Weseley, two additional bills in the Big Apple “would focus on restricting noncompetes for low wage and freelance workers, respectively.”
The New York state bill had been opposed by Wall Street businesses, which “argued the agreements are necessary to protect investment strategies and keep highly paid workers from leaving their companies with prized inside information and working for an industry rival,” the Associated Press previously reported.
Three states — California, North Dakota and Oklahoma — banned noncompete agreements in 2023.
“What the stance of the governor is, is that noncompetes are inappropriate for low- and middle-wage workers,” Eric Packel, chair of Polsinelli’s restrictive covenants and trade litigation unit, said during a webinar in January.
What employers need to know, Packel said at the time, is that “you can still protect your confidential information, you can still protect your trade secrets, you can still take these measures, but we have to be more strategic now more than ever and more thoughtful about how we do it now more than we ever have before.”
