Hunton Employment & Labor Perspectives

After nearly a decade of attempts, the Democratic Party is once again attacking non-compete agreements at the national level.  For several years, federal legislation has been proposed to limit the use of non-compete agreements in low-wage fields where Democrats say they have no valid use.  For example, in June 2015, former U.S. Senator Al Franken (D-Minn) and U.S. Senator Chris Murphy (D-Conn) proposed legislation that would ban the use of non-competes for low-wage earners (identified as individuals making less than $15 an hour, $31,200 per year or the minimum wage in the employee’s municipality) and require employers to notify all prospective employees that they may be asked to sign a non-compete agreement upon hiring.

Last week, Democrats stepped up their efforts by proposing legislation in both houses that would effectively ban non-compete agreements altogether.  House Democratic Caucus Chairman Joe Crowley (D-NY) introduced the Workforce Mobility Act, along with Reps. Linda Sanchez (D-Calif), Mark Pocan (D-Wis) and Keith Ellison (D-Minn), which deems non-competes a violation of federal antitrust law.  The bill also proposes providing workers a private right of action if they are required to sign a non-compete as a condition of employment.

U.S. Senators Chris Murphy (D-Conn.), Elizabeth Warren (D-Mass.), and Ron Wyden (D-Ore.) introduced a version of the Act in the Senate that would ban employers from using non-compete agreements, require employers to notify employees that non-compete agreements are illegal, and allow the U.S. Department of Labor to enforce the ban with fines on employers.

However, before employers and other proponents of non-competes get too concerned, it is important to recognize that non-compete regulation has always been a state issue.  Even the Obama administration, while concluding that non-compete agreements stifle innovation, reduce job mobility, and negatively impact economic growth, called upon the States to restrict their use.  Many around the country, including Idaho, Illinois, Utah, New Jersey, Maryland, Massachusetts and Washington, apparently sharing the White House’s view, answered by proposing and/or enacting legislation to limit the reach and scope of non-competition agreements within their respective jurisdictions.

While President Trump’s official position on non-competition agreements is not yet clear, he has utilized such agreements in the past (most recently with his campaign workers and volunteers) and promotes the use of non-disclosure agreements to prevent leaks by federal employees.  He also is a very vocal proponent of states’ rights.  Thus, it seems likely that the Trump administration will generally support the freedom to enter into such agreements while leaving enforcement issues to the States.

Looking ahead, to the extent reform is not already realized or underway, employers should pay close attention to evolving state law developments in this area and review their existing non-compete agreements to analyze the implication of any proposed or recently implemented state laws.