The Latest Fight to Help American Workers: Reforming Non-Compete Agreements

The idea behind a non-compete agreement is straightforward: An employee shouldn’t be able to take all the training and contacts they get on the job to a direct competitor. 

Traditionally these agreements came with a limit. Either they only lasted for a short period of time — a year was common — or they only applied in the employer’s area.

But in recent years, non-compete agreements have grown lopsided, with businesses placing more and more restrictions on what their workers could do if they left their jobs. 

Now, courts, state officials and even some members of Congress are starting to rethink the system.

The changes are part of ongoing efforts to reform employment law, including workers pushing back on the broad use of arbitration to settle discrimination and harassment claims.

Here’s a look at what you need to know.

What are non-compete agreements?

A non-compete agreement (sometimes referred to simply as a “non-compete”) is an employment contract that prevents an employee from unfairly competing against his or her (often former) employer. Specifically, a non-compete prohibits an employee from taking a job with the former employer’s competitor subject to certain limits on time and geography.

The key word to remember is “unfairly.” Non-competes were originally intended to protect employers from investing time and money in employees, only to have the employees leave and put what they just learned to use with a competitor.

Non-competes were usually reserved for employees who required significant investment by the employer to train or, who after departure, could make use of sensitive information with a competitor. This usually meant only executives, managers, researchers and other higher-level employees were the types of employees that usually had to sign non-competes.

But a recent trend by companies has turned this “shield” against unfair competition into an economic “sword” by forcing all employees, even low-wage earners in the fast food industry, to sign them. One highly publicized case involved the Jimmy John’s restaurant chain, which forbade any departing employee, for a period of two years, from working for any company that earned more than 10 percent of its revenue from sandwiches located within two miles of any Jimmy John’s store.

That turned the logic behind a traditional non-compete on its head. Sandwich-making is hardly a trade secret, and by the time the New York attorney general began investigating, Jimmy John’s had 2,000 stores around the country, making it much more difficult for former workers to find a job.

After enduring bad publicity, Jimmy John’s eventually agreed to stop asking its employees to sign non-competes.

How are non-competes being restricted?

In recent years, a number of states have passed laws that restrict the use of non-competes, including Colorado, Idaho, Illinois, Nevada, New Mexico, Oregon and Utah.

Many of these states still allow employers to ask employees to sign non-competes, but these changes reflect the growing trend of expanding employee protections against the enforceability of non-competes. 

Some states had already largely banned the use of non-competes except in very limited circumstances: California, Montana, North Dakota and Oklahoma.

What is Congress doing about non-competes?

In January, Republican Sen. Marco Rubio introduced the Freedom to Compete Act. The FCA amends the Fair Labor Standards Actof 1938 by adding language that would prohibit employers from asking most non-exempt employees to enter into (or renew) a non-compete agreement. The FCA would also apply retroactively and void any existing non-compete agreements that were subject to the FCA.

One particular feature of the FCA is that it would not apply to exempt workers such as bona fide executives, administrative personnel, professionals and outside sales employees. Generally speaking, exempt employees are those who are not eligible for overtime pay.

Whether the FCA will become law remains to be seen. There is already some criticism that it’s been drafted using imprecise language and could be interpreted by some courts to also ban the use of other types of employment contracts, including non-solicitation and non-disclosure agreements. And this isn’t the first time this type of law has been proposed.

Just last year, Democratic Sen. Chris Murphy introduced the Workforce Mobility Act, which goes further than the FCA by applying to practically all employees, not just non-exempt ones. Like the FCA, the WMA is currently in committee and its future remains uncertain.

Tom Spiggle is author of the book “You’re Pregnant? You’re Fired: Protecting Mothers, Fathers, and Other Caregivers in the Workplace.” He is founder of the Spiggle Law Firm, which has offices in Arlington, Va., Washington, D.C., and Bethesda, Md., where he focuses on workplace law helping protect the rights of clients facing pregnancy and caregiver discrimination, sexual harassment and wrongful termination in the workplace. To learn more, visit: https://www.spigglelaw.com/contact.