White House Aims to Lift the Curse of Overreaching Non-Compete Agreements
Responding to the economic impact of unnecessary and overreaching non-compete agreements – and even recent examples of employers colluding to limit job options of employees – the White House last week announced a new push to “Spur Competition in the Labor Market and Accelerate Wage Growth.” It’s about time.
Wow! a National Push to Reform Non-Compete Policies Across States? How Did I Miss it?
It would be understandable if you missed the announcement. The White House announcement slipped from media attention amid the frenzy in the last weeks of the presidential election and the excitement of the World Series’ return to Wrigley Field. How could the legal policy shift on an issue of labor economics compete for media attention? I get it. But the new actions by the Obama Administration have the potential to have wide reaching impact for many Michigan employees who have felt unnecessarily limited by industry non-compete agreements and other collusion that limit their job options.
How can Presidential Action Change Things?
The administration proposals include: stepped up enforcement of anti-trust law against industry collusion to limit mobility of labor, including a new DOJ hotline, and new guidance and best practices for State reform of non-compete laws, including tracking the states that have non-compete laws and practices that allow large firms to restrict labor markets and distort interstate commerce. When leaders listen, policies can change. Business leaders can respond to best practices and make a difference within their industry. State legislators can respond by reviewing and improving state law. Prosecutors might respond by focusing new attention on rogue competitors that would use employment contracts to restrict former employees.
How Do Permissive Non-Compete Policies Affect Workers?
As an employment lawyer, I have observed first hand the horrible consequences of abusive non-compete enforcement for my clients. For years, we have written about and talked about the damage it is doing to the Michigan labor market. Reporters, labor advocates, and academic researchers have echoed and amplified the call for action. In Michigan, a policy of rubber stamping contractual non-competes is driving highly skilled employees in a national job market to leave the state for job opportunities elsewhere – especially workers and future entrepreneurs in the tech and pharma sector that we are fighting so hard to retain.
Practically speaking, the threat of a non-compete lawsuit is often enough to scare an individual to take a “career detour” and sit idle for a year or two until a non-compete runs out. The costs of litigation can also scare a new employer to fire their newly hired talent. New startups look for greener pastures where they have access to a pool of talented people without fear of a legal and financial quicksand caused by contract disputes. Legal wrangling over these prior restrictions drives up the cost of doing business and slows the pace of hiring and recruiting.
The new push by the Obama administration has the potential to translate into real reforms in the non-compete culture embraced in many industries and across too many states. The guidance and leadership, if followed, will result in lowered restrictions on mobility, higher salaries in a more competitive job market, and make litigation a less routine part of job transition for many professionals. It’s time for a national dialogue on the impact of forced non-compete contracts. Hopefully, the latest White house actions will be a trigger.