Not long before the election, the Obama Administration issued a “call to action” statement in which it urged state governments to restrict many of the non-compete agreements that employers often impose on employees. The statement calls on state legislatures to adopt certain “best practices” for regulating employee non-compete agreements, including:
- banning non-compete clauses for certain categories of workers, such as workers under a certain wage threshold, workers in certain occupations that promote public health and safety, and workers who are unlikely to possess trade secrets;
- refusing to enforce non-compete clauses against workers who are laid off or terminated without cause;
- disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted;
- requiring employers to give additional consideration (i.e., more than just continued employment) to workers who sign non-compete agreements;
- encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work; and
- encouraging the elimination of unenforceable provisions through the use of legal doctrines that make such provisions (or contracts containing them) void.
The statement follows the administration’s May 2016 report titled “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” The administration stated that the May 2016 report was intended to address “issues regarding misuse of non-compete agreements and describe a sampling of state laws and legislation to address the potentially high costs of unnecessary non-competes to workers and the economy.”
The statement noted that the laws of three states (California, Oklahoma, and North Dakota) already contain significant restrictions on non-compete agreements signed by employees, and at least a dozen states have considered legislation in this area during the past year. To accompany the report, the White House also published a “state-by-state explainer” of existing state non-compete laws to help interested parties understand the restrictions that are already in place across the country.
Despite last week’s election, the Administration’s proposal is certain to attract a significant amount of attention, both pro and con. For one thing, there is an ongoing discussion in the economic and business press regarding whether non-compete agreements are good for the economy. Of particular importance for franchisors and franchisees, unless the Republican Congress and Trump Administration enact national non-compete laws and regulations, the focus of non-compete regulation is likely to shift to the individual states over the next four to eight years. Given the deep political divides present in the country, regional and national franchise systems could be facing a myriad and conflicting patchwork set of state regulations. Because of this, franchisors and franchisees should be careful to note that a particular form agreement may be fine for employees in some states but less-than-ideal for employees in a different state. The “explainer” document can be a helpful tool to help franchisors and their franchisees understand those differences when they hire new employees across the country.
Much of the text of this post was originally authored by Jim Singer and first appeared in a slightly different form on his IP Spotlight Blog. We thank Jim greatly for his permission to re-post it here in a slightly modified form.