FTC Noncompete Ban Blocked; New York State Independent Contractor Regulations Set To Take Effect August 28

FTC Noncompete Ban Blocked

On August 20, 2024, the U.S. District Court for the Northern District of Texas struck down the Federal Trade Commission’s (FTC) rule imposing a near-total nationwide ban on noncompete clauses set to go into effect on September 4, 2024 (the “Effective Date”). The Court set aside the rule and nullified its proposed Effective Date, holding, among other things, that “the FTC lacks the statutory authority to promulgate [the rule], and…[the rule] is arbitrary and capricious.” While it is likely that the FTC will appeal the Court’s decision to the Fifth Circuit Court of Appeals, existing noncompete agreements and restrictive covenants are, at least for now, intact and enforceable subject to existing state laws. Nevertheless, as we reported in our recent Client Alert on July 8, despite the genuine business interests that support the legitimate need for noncompete agreements, the continued viability of post-employment noncompete terms in employment and separation agreements is notably trending downwards. While the fate of the FTC’s rule winds its way through the appellate courts, we continue to recommend a thoughtful approach to the use of noncompete agreements.

New York State Independent Contractor Regulations Set To Take Effect August 28

Commencing on August 28, 2024, the Freelance Isn’t Free Act (“FIFA”) will go into effect in New York State and will protect all freelancers/independent contractors (who are either an individual or an organization comprised of a single individual) hired by a “hiring party” on or after August 28, 2024 for services in exchange for an amount of $800 or more (hereinafter, a “freelancer”). FIFA mirrors protections already enacted in New York City. The FIFA will not apply retroactively to arrangements entered into prior to August 28, 2024. The FIFA’s definition of a “hiring party” is any person/organization (regardless of size) that retains a freelance worker to provide any service. The FIFA likely covers all hiring parties, regardless of their location or state of organization, that contracts with freelancers in New York State, as the FIFA is silent on jurisdictional requirements of the hiring party.

Under the FIFA, a hiring party must (i) memorialize freelancer agreements in writing (which need to contain certain provisions, including, without limitation, an itemization of the freelancer’s services, the agreed upon value of the freelancer’s services, the rate of pay and the payment date), (ii) unless otherwise specified in the agreement, pay freelancers no later than thirty (30) days after the completion of the freelancer’s services, (iii) maintain the freelancer’s contracts and records for a minimum of six (6) years, and (iv) not engage in discrimination against, harassment of or retaliation against freelancers in connection with exercising their rights under the FIFA. Attorneys, licensed medical professionals, sales representatives (as defined by law) and construction contractors (as defined under the FIFA) are explicitly exempted as covered freelancers under the FIFA.

The FIFA permits aggrieved freelancers collect (i) recovery of double damages (i.e., 200% of the underpayment), injunctive relief, attorneys’ fees and costs, and other remedies as may be appropriate, for failing to make payment to the freelancer by the agreed-upon date in the written contract or within thirty (30 days of completing the agreed upon services); (ii) $250 in statutory damages for failing to procure a written freelance agreement; and (iii) statutory damages equal to the contract price for violating the FIFA.

The New York State attorney general is empowered to assess civil penalties in connection with purported violations by the hiring party in an amount not to exceed $1,000 for a first violation, $2,000 for a second violation, and $3,000 for a third or subsequent violation. The FIFA also allows for a civil penalty in an amount not to exceed $25,000 for a finding that the hiring party has “engaged in a pattern or practice” of violating the FIFA, to be paid to the “general fund.”

Kleinberg Kaplan’s attorneys will continue to monitor further updates related to the FTC’s noncompete ban as well as the FIFA. Concerned companies should contact their regular Kleinberg Kaplan contact or the authors of this client alert to discuss the potential impact of these matters on them and their businesses.