Articles Client Alerts / 11.01.2016

White House Urges States to Adopt Laws Limiting Non-Compete Agreements

By Robert J. Bowes and Alex E. Jones

On October 25, 2016, the White House issued a Fact Sheet announcing new initiatives to spur competition and increase wage growth. The White House is taking aim at wage collusion among competing employers and what it deems to be the overuse of non-compete agreements.

The White House is, once again, looking into the overuse of non-compete agreements. On April 15, 2016, President Obama signed an Executive Order calling for actions that enhance competition to benefit consumers, workers, and entrepreneurs.  And in May 2016, the White House released a White Paper on the use of non-compete clauses in which it stated its view that such clauses have negative impacts on the economy because they hinder worker mobility. Now, the White House is urging state policymakers and Congress to pass legislation that limits the use of non-compete clauses in employment agreements. Following the issuance of the Fact Sheet, Vice President Joe Biden was quoted as saying, “[w]e have the most dynamic, productive workers in the world, but they can’t reach their true potential without freedom to negotiate for a higher wage with a new company, or to find another job after they’ve been laid off.”

Specifically, the Fact Sheet calls on state legislatures to enact one or more of the following measures:

  1. Completely ban non-compete clauses for certain categories of workers, such as: (i) low-income employees; (ii) workers in occupations that promote public health and safety; (iii) workers who do not possess trade secrets; and, (iv) workers who suffer adverse impacts from non competes, like those laid-off or terminated without cause.
  1. Improve the fairness of non-competes by: (i) requiring employers to provide the non-compete agreement prior to offering a job or a promotion; (ii) providing additional consideration above and beyond continued employment; and, (iii) encouraging employers to inform employees of the law surrounding non-competes in their state.
  1. Incentivize employers to write enforceable non-compete provisions by adopting the “red pencil doctrine,” which holds that a contract is void in its entirety if one particular provision is unenforceable.

The White House also called on Congress to pass the Mobility and Opportunity for Vulnerable Employees (MOVE) Act. The MOVE Act would completely ban non-compete clauses for employees making less than $15 an hour or $31,200 a year.

The Fact Sheet also references the Department of Justice (“DOJ”) and the Federal Trade Commission’s prior guidance for HR professionals on how to spot and report collusion among competing employers on employee compensation or to not solicit or hire one another’s employees. The DOJ also announced that it will criminally investigate any allegations of collusion.

This Fact Sheet is not binding on any state, but states are slowly beginning to limit the enforceability of non-compete clauses. Indeed, California, North Dakota, and Oklahoma have already banned non-compete clauses.  As this issue gains more attention, state policymakers are sure to take a closer look at their state’s current laws regarding non-competes.

To protect their investments in their employees and themselves, employers should have counsel review their current non-compete agreements to ensure they are enforceable and remain so to the fullest extent possible as the law evolves. Likewise, to understand the boundaries of hiring new employees who have signed non-competes, it will remain necessary to understand the limits of these agreements. Fortunately, KJK’s labor and employment attorneys are well-versed in non-compete law, having drafted and litigated hundreds of these agreements with millions of dollars at stake. For assistance with drafting or the enforceability of non-compete agreements, please contact your KJK Labor and Employment attorneys.