In late February, a bipartisan group of senators reintroduced the Workforce Mobility Act to Congress. Bipartisan supporters originally introduced the bill in 2019, but it didn’t pass. This version is the latest attempt to restrict non-compete agreements at the federal level. It would limit the use of non-compete agreements in multiple ways, with rippling effects on employers and employees.
The bill’s sponsors submit that research says non-compete agreements are often so restrictive they negatively affect workers’ job mobility, which often results in lower wages. Research also notes that employers often have trouble finding workers with the right skill sets because of non-competes.
The Biden Administration voiced its support for the restriction of non-competes on the federal level.
What is a Non-Compete Agreement?
Non-competes are typically used to limit competition between an employee and his or her former employer. Employers use them to protect their confidential information and trade secrets. In typical non-compete agreements, an employee agrees not to work for, or become, a competitor for a defined period of time.
A non-compete usually includes four elements:
- The date the agreement takes effect;
- The reason for enacting the agreement (usually to protect certain business interests);
- Specific dates within which the employee is prohibited from “competing” with the employer—including any time after the employment contract terminates—and the geographic location covered; and
- The consideration the employee will receive for agreeing to the non-compete.
When are Non-Competes Enforceable?
Each non-compete—including the reasons for entering it, the geographical area it covers, and the time period it will be effective—is unique. So there isn’t a definitive way to determine if a particular one is legally binding. Unless, that is, you’re in North Dakota, Oklahoma, and California. In those states, non-compete agreements are unenforceable.
Outside of those states, non-competes are generally enforceable if their time limits and geographic scope are “reasonable.” And if the agreement identifies the specific competitors with whom the former employee cannot associate, and prohibits the employee from opening a new business in the former employer’s specific industry, it’s got an even better chance of holding up. State law determines how courts interpret and enforce these agreements.
How Will the Workforce Mobility Act Change the Landscape?
The WMA, if passed, would be a game-changer.
The bill’s sponsors have yet to release the exact text, but according to sponsor Senator Christ Murphy (D-Conn), the bill would have four primary impacts. The WMA would:
- limit the use of non-competes to dissolution of a partnership or the sale of a business;
- empower the Federal Trade Commission and the Department of Labor with enforcement obligations (but it would also provide for a private right of action);
- require employers to make employees aware of the use of the non-compete; and
- require the FTC and Department of Labor to report to Congress any enforcement actions taken.
The bill would affect businesses whose confidential information and business strategy may not be trade secrets. It would also upset several decades’ worth of state-level legal precedent.
As mentioned earlier, previous legislation on this subject did not pass Congress. It remains to be seen if this iteration will. Stay tuned for more updates!
If you have questions about the Workforce Mobility Act and how it could impact your business, call us today!