White House Advocates for Partial Ban on Non-compete Agreements

White House Advocates for Partial Ban on Non-compete Agreements

October 26, 2016

 

The Obama administration has not been shy about pushing for greater protections for Americans in the workplace, particularly in the area of equal employment opportunity.  The White House has also taken aim at employee non-compete agreements.  On Tuesday, October 25th, Vice President Biden, on behalf of the administration, encouraged state law  bans on the unbridled use and enforcement of non-compete agreements against low wage earners and those who do not have access to employer trade secrets.  The Vice President opined that limiting the use of non-competes will make for a more competitive marketplace and increased wages.

 

This is not the first time the White House has spoken on the issue:  https://www.whitehouse.gov/blog/2016/05/05/what-you-need-know-about-non-compete-agreements-and-how-states-are-responding

 

Non-compete agreements (and other employment related restrictive covenants) have received greater attention as lawmakers perceive a widespread abuse of such agreements. In June, the state of Illinois sued the Jimmy Johns chain over its use of non-compete agreements with low-level employees behind the counter who simply assemble sandwiches. Based upon the black letter of the agreements, a given Jimmy Johns employee was prohibited, for a period of two years, from doing the same work at a Subway location a few miles away. Jimmy Johns eventually capitulated and agreed it would no longer use the agreements.

 

Restrictive covenants, when appropriately implemented, are designed to protect an employer’s legitimate business interests such as trade secrets and substantial customer relationships.  Low wage earners typically do not pose a threat to such business interests and therefore are not ordinarily the proper subjects of non-compete agreements.

 

In most states, the cards are stacked against individual workers when it comes to the enforcement of non-compete agreements.  By way of example, in Florida, courts are precluded from taking into consideration the relative hardship the enforcement of a restrictive covenant would have on a defendant employee and his/her family.   Typically, there are arguments that an employee can assert in defense against a non-compete lawsuit, but even a meritorious defense is expensive as attorneys do not take the defense of restrictive covenant suits on a contingency fee basis.  Moreover, the “loser” of a non-compete case typically must pay the attorney’s fees and costs of the prevailing party, a burden the individual employee would be less able to bear than the employer.

 

Lawmakers are acutely aware of this imbalance of power between the average American worker and the employer.  Not surprisingly, a number of federal laws have been proposed to curtail the use of non-compete agreements, particularly with vulnerable, low-wage earners.  Depending upon the future political landscape, we may see some dramatic changes in non-compete law on a national level.