White House Urges Noncompete Ban for Certain Jobs
Author: David B. Weisenfeld, XpertHR Legal Editor
November 3, 2016
The Obama administration has announced several steps to reduce what it sees as the misuse of noncompete agreements, including urging states to ban noncompetes altogether for certain jobs. One in five US workers is bound by a noncompete agreement, including 14% making less than $40,000 per year.
The administration claims that such restrictive covenants stifle employee mobility and unnecessarily suppress wages. As a result, it is calling on state policymakers to improve the transparency and fairness of noncompete agreements by prohibiting them unless they are proposed before a job offer or significant promotion has been accepted. The rationale behind this step is that an applicant who has accepted an offer and rejected other possible positions may have much less bargaining power.
Meanwhile, the White House also would like states to ban noncompete clauses for the following categories of workers:
- Those under a certain wage threshold;
- Employees in occupations promoting public health and safety;
- Those unlikely to possess trade secrets; and
- Employees laid off or terminated without cause.
In issuing these steps for state noncompete reform, the administration quotes Federal Trade Commission Chairwoman Edith Ramirez, who says, "Competition is essential to well-functioning markets, and job markets are no exception."
Earlier this year, the White House and the Department of Treasury's Office of Economic Policy released reports highlighting the negative impact of what they termed unnecessary noncompete agreements.
Speaking with XpertHR, Dallas employment attorney Mary Goodrich Nix, of Holland & Knight, agreed that banning noncompetes for certain categories of jobs might be a good idea. "The great majority of employees really should not be under a noncompete agreement," said Nix, who added that these agreements should be reserved for those employees who are given access to very sensitive information or certain key customer relationships.
However, Nix suggested that a sweeping ban on noncompete agreements before a job offer or promotion has been accepted could have unintended consequences. And citing the administration's call to ban noncompetes for employees who earn $40,000 or less, Nix asked, "What if the employee is a sales employee who has no or very low salary and whose compensation is based on commission?"
In at least four states - California, Montana, Oklahoma and North Dakota -- noncompetes signed by employees are generally void and unenforceable. Several other states have either passed or are considering legislation that would change how noncompete agreements are regulated. For instance, Illinois recently became one of the first states to ban noncompetes for low-wage workers in passing the Illinois Freedom to Work Act.
Other notable limitations include:
- Oregon and Utah limiting the duration of noncompete agreements;
- Hawaii prohibiting the use of noncompetes for technology jobs; and
- New Mexico limiting noncompetes for health care workers.
On the same day that the Obama administration made its announcement, New York Attorney General Eric Schneiderman said he will encourage legislation that would requiring New York employers to pay additional compensation to employees in exchange for signing a noncompete. This legislation would include many of the same steps that are included in the White House's recommendations.