White House Urged States to Limit Employee Non-Competes

Labor LawThe Obama Administration had called on states to reduce the use of non-compete clauses in employment agreements.

As I discussed in this blog, even Jimmy John’s sandwich shop workers have been required to sign non-competes. The New York Times and the Huffington Post both reported on the trend of having low-level — even minimum wage — workers sign non-competes.

According to the White House Press Office, non-compete agreements affect an estimated one in five workers in the US — about 30 million people.

Although non-competes are more widely used at the top end of the pay scale, one in six workers without college degrees have also signed them.

The New York Times reported that some workers may not have realized that they were signing away their future employment opportunities when they signed their job contracts. (This might be a good time to check your own employment agreement.)

State Laws

Non-compete clauses and agreements are governed by state law.

California, North Dakota, and Oklahoma consider most employee non-competes to be contrary to public policy and those state courts usually refuse to enforce them.

The White House and the Treasury Department both came out with reports earlier this year concluding that non-compete clauses should not be used as widely as they are at present.

The latest statement from the White House says:

Most workers should not be covered by a non-compete agreement. Though each state faces different circumstances, we believe that employers have more targeted means to protect their interests, that non-compete agreements should be the exception rather than the rule, and that there is gross overuse of non-compete clauses today. While the primary rationale of non-competes is to prevent workers from transferring trade secrets to rival companies, a considerable proportion come at the expense of workers, entrepreneurship, and the broader economy.

Why Non-Competes?

So if non-competes are bad for workers and the economy, why do employers make people sign them?

According to the Times,

Backers of noncompetes [insist] that they help spur the state’s economy and competitiveness by encouraging companies to invest heavily in their workers. Noncompetes are also needed, supporters say, to prevent workers from walking off with valuable code, customer lists, trade secrets or expensive training.

However, the Times reported that non-competes have been blamed for the failure of Boston's Route 128 area to match the prosperity of California's Silicon Valley:

Noncompete pacts were only one ingredient in the recipe that worked against Massachusetts and to the advantage of Silicon Valley, where employees can depart and start their own companies mostly without fear of a lawsuit.

Non-competes have also been blamed for keeping tech-sector wages lower in Massachusetts than in California.

A Better Way?

The White House says that "best practices" for state laws on non-competes would include:

  • Banning them for some types of employment situations, such as where workers earn less than a specific wage or have been laid off or terminated.
  • Making employers present non-competes before people are hired or promoted, rather than when they're already working.

If you live in a state that enforces non-competes and you think they're a bad idea, you can consider making your concerns known to your state representatives.

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