Congress Attempts To Prevent Non-Compete Agreements: What It Means For Employers

Senators recently introduced a bill called the Mobility and Opportunity for Vulnerable Employees (MOVE) Act, which if passed would protect low-wage employees from signing non-compete agreements.

The MOVE Act would amend the Fair Labor Standards Act (FLSA) to prohibit employers from entering into non-compete agreements with any employees who make less than $15 per hour or $31,200 per year. Employers who employ low-wage workers would also be required to post notice of the MOVE Act in a conspicuous place.

Employers entering into non-compete agreements with other, non-low-wage employees would have to disclose the agreement to the applicant at the beginning of the hiring process.

As with other FLSA violations, the Secretary of Labor has the power to investigate and enforce complaints. Employers could be fined up to $5,000 per employee for violations of the MOVE Act.

The bill follows recent criticism of employers using non-compete agreements with low-wage workers. Last year, employees sued a large sandwich chain for forbidding them from "working at any food service venue that derives 10% or more of its revenue from the sale of 'submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches' within three miles" of the restaurant for a period of two years. Ellen Shulock Caro and Michael Weil "For Here or To Go? Senators Introduce Bill to Ban Noncompete Agreements, Increase Mobility For Sandwich Makers and Other Low-Wage Workers," jdsupra.com (Jun. 18, 2015).

 As this proposed legislation shows, lawmakers and courts are often suspicious of non-compete agreements, especially for low-wage workers, because they prevent freedom of movement, which many feel is essential in a free market.

Non-compete agreements are most appropriate when used with executives and sales people who have access to trade secrets or clients, and who could seriously hurt the employer if these are taken to a competitor or used to start a business. In these cases, requiring employees to sign non-compete agreements protects a valid business interest.

On the other hand, preventing low-wage workers who do not have knowledge of sensitive information or access to restricted files from moving to a better job in the same field looks like an attempt not to protect a business interests, but to reduce turnover. By preventing the freedom of employees to move to higher-paying jobs or jobs with better benefits, such employers look like they are trying to keep workers through questionable methods.

The likelihood of the bill passing Congress is uncertain—although many Congressmen and non-profit organizations support the bill, it does not appear to have bipartisan support. However, even if the bill does not pass Congress this session, similar legislation is likely to appear at the national and state levels in the future. Therefore, employers would do well to consider the consequences of such legislation now.

It is best practice for employers to keep employees by offering competitive wages, attractive benefits, and a positive work environment. Creating strict contracts that stymie employees may keep a few workers in the short term, but the best employees will not want to work for such organizations. In the long term, requiring non-compete agreements in cases where they are not required could lead to a lawsuit.

Employers that use non-compete agreements should examine which employees they affect and only require them for employees with access to trade secrets and valuable client lists. Examine business practices to make sure that employees are attracted to the organization by the pay and work environment offered, and are not staying just because they are afraid of seeking a better job elsewhere.

In addition, employers that require non-compete agreements in their contracts may be nullifying the at-will employment doctrine. Employers should make sure their contracts do not promise employees continued employment or otherwise negate the at-will doctrine.

Some of the benefits of preserving the at-will doctrine for employers include: 

  • An employer can terminate an employee at any time for any reason (except an illegal one) or for no reason without incurring legal liability.
  • An employer can change the terms of the employment relationship (e.g. wages, benefits, leave time) with no notice and no consequences.
  • At-will employees would have to show that the reason for termination was illegal (e.g. discriminatory or retaliatory) to win a wrongful termination lawsuit.
  • Employers can continually improve the functioning of the organization because they can have freedom to terminate employees who are not performing well or who are hurting the organization or putting it at risk.

Via: Hartford Help