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Legal Insider: President Likely To Propose Nationwide Non-Compete Agreement Ban

This is a sponsored column by attorneys John Berry and Kimberly Berry of Berry & Berry, PLLC, an employment and labor law firm located in Northern Virginia that specializes in federal employee, security clearance, retirement and private sector employee matters.

By John V. Berry, Esq.

The President is very likely to seek the elimination of all non-compete agreements, except those that are absolutely necessary. A non-compete agreement restricts where and when an employee can work after leaving their current job. Most employees sign a non-compete agreement before they start employment.

Why Change Is Needed

The proposed change is in response to efforts over the past 15 to 20 years where the use of non-compete agreements has gotten out of control and is beginning to cover practically every type of employee. The result has been that some employees, at even the lowest levels of a company, are barred from getting another position, even if they are terminated. It also has caused an inability for lower-wage workers to take better jobs at other employers as their skills develop. If you want to learn more about non-competes, check out this previously published article.

The President, during the campaign, stated that his goal was to:

“Eliminate non-compete clauses and no-poaching agreements that hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers. In the American economy, companies compete. Workers should be able to compete, too. But at some point in their careers, 40% of American workers have been subject to non-compete clauses. If workers had the freedom to move to another job, they could expect to earn 5% to 10% more — that’s an additional $2,000 to $4,000 for a worker earning $40,000 each year…”

See more in the President’s Campaign Plan.

Potential Federal Changes to Non-Compete Agreements

It is uncertain whether or not federal legislation instituting a ban on non-compete agreements will pass Congress. There is also the question as to whether or not the President would use an executive order to bar government contractors from using or enforcing non-compete agreements with their employees. Presumably, the President could do so without Congress.

States Start To Limit Non-Compete Agreements

For the moment, most states allow non-compete agreements in some form. This is quickly changing and many states are reconsidering whether or not to permit (or extremely limit) non-compete agreements. For instance, California has maintained a ban on employee non-compete agreements. In addition, other states, such as the District of Columbia, Oklahoma and North Dakota allow them only in narrow circumstances.

In Virginia, non-compete agreements had long been permitted, but the courts here have made them significantly harder to enforce when they deem them unreasonable. Furthermore, Virginia, as of July 2020, enacted a partial ban on non-compete agreements for low[er]-wage employees. Low-wage employees in Virginia are currently defined as those making approximately $62,000 a year or less, so many employees will be affected.

Conclusion

While there are definitely legitimate uses of non-compete agreements, such as to protect companies from the loss of very sensitive business information and/or personnel, some have gone too far with this type of forced agreement in recent years, which has caused the current backlash. There are examples of food service workers or mechanics forced to sign non-compete agreements, forbidding them from working for others.

However, change is coming and long needed. At this point, given the number of states changing their laws, it is only a matter of time before non-compete agreements are only permissible in isolated circumstances. Non-compete agreements remain needed in some types of employment but not in the broad manner that they are being used today.

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