Federal Ban on Non-compete Agreements—Is It Possible?
Non-compete agreements have the attention of congress. A bipartisan effort to regulate non-compete agreements on a federal level was introduced in the U.S. Senate in October 2019 by Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.). Senate Bill 2614, the Workforce Mobility Act of 2019, proposes a near federal ban of all employee non-compete agreements, with limited exceptions for certain business transactions. The bill would have sweeping implications, but does it have any chance of becoming law?
Workforce Mobility Act Would Limit Noncompete Agreements
The Workforce Mobility Act (WMA) defines a “non-compete” agreement as any agreement between “a person and an individual performing work for the person” that restricts the individual, after the termination of the working relationship, from doing the following:
- Working for another person for a period of time.
- Working in a specified geographic area.
- Working for another person similar to the individual’s work for the company.
The WMA generally prohibits the use of non-compete agreements, except in limited instances. The bill permits noncompete agreements in connection with the sale of a business, as part of the dissolution of a partnership (or buyout of a person’s partnership interest), or as part of a severance agreement with senior executives as part of the sale of a business (but the agreement is limited to 12 months and the employee must receive 12 months’ severance pay).
The WMA does not expressly prohibit non-solicitation agreements or non-disclosure agreements. Still, the definition of a “noncompete agreement” leaves open the possibility that these agreements may also be restricted. The bill does not prohibit agreements that prevent employees from sharing trade secrets.
The Federal Trade Commission and the Department of Labor would be responsible for enforcing the WMA. The bill does allow workers to file suits for violations of the WMA.
How the WMA Impacts Employees
Non-compete agreements limit employee mobility, stifle wage growth and innovation, and prevent true competition. An estimated 40 percent of American workers have been subject to a non-compete agreement at some point in their careers. Given the growing use of these agreements in today’s workforce, even with employees in low-paying jobs, the harm imposed on the economy and workers has not gone unnoticed.
A prohibition on non-compete agreements would force companies to find a new way to protect their company’s legitimate interests without impeding a person’s ability to change jobs and earn higher wages. Passage of the WMA would also provide a uniform standard, which would ease the current discrepancies between states.
Does the Workforce Mobility Act Have a Chance?
The WMA is not the first attempt by legislators to regulate the use of non-compete agreements. Similar federal efforts failed in 2018 and January 2019, and many states have proposed or enacted legislation to limit the use of non–compete agreements.
While the WMA received praise from many, its future seems uncertain, and some critics argue that safeguards against employer abuse of non-compete agreements already exist in the court system and that the bill goes too far. A hearing was held in November 2019, but there has been no movement since that time. While passage of the bill may be unlikely, it has again brought the issue of abuse of non-competes to the forefront and may be a good step towards negotiating a compromise bill.
The Ottinger Employment Attorneys have drafted, reviewed, and negotiated non-compete agreements for over 20 years. Non-compete agreements can ruin your future career prospects, so it is critical that you carefully review and consider the long-term implications of these agreements. If you are contemplating entering into a non-compete agreement or fighting enforcement of an agreement, contact us today. Click here for more about non-compete agreements in New York.