Non-Compete Agreements: Going the Way of the Dodo Bird?

For decades, more and more companies have required their employees to enter into contracts that hamper their employees’ ability to make a living after leaving the job. The most common of these agreements is called a non-compete agreement. These agreements stop workers from practicing their profession for a certain amount of time and within a certain geographic area. Non-compete agreements are enforceable, even if the employer fires the employee. Violating these agreements can cost workers tens of thousands of dollars. There are other anti-competition agreements in the same vein, including non-solicitation agreements. These agreements keep former co-workers or former clients from poaching when the worker leaves. Additionally, training repayment agreements make former employees pay back training costs if they leave within a certain amount of time.

A push has begun recently to fight this anti-competition trend. California, Colorado, Oklahoma, North Dakota, and Minnesota have fully banned non-compete agreements. A few other states, including Massachusetts, have forbidden such agreements for certain professions. Nevertheless, employers permit and enforce non-compete agreements throughout most of the United States of America.

However, that might be changing soon. The Biden Administration, through several federal agencies, has begun to push to ban non-compete agreements nationwide. On January 5, 2023, the Federal Trade Commission proposed a new regulation that would generally prohibit employers from (1) entering into or attempting to enter into a non-compete with a worker; (2) maintaining a non-compete with a worker; or (3) representing to a worker, under certain circumstances, that the worker is subject to a non-compete. While this proposal technically only applies to non-compete agreements, agreements, such as non-solicitation and training repayment agreements, could be subject. This proposal may come into play where agreements are so broad in scope they function as a “de facto” non-compete.

In May 2023 the National Labor Relations Board added to the chorus. Its General Counsel, Jennifer Abruzzo produced a legal memorandum, typically seen as a declaration of intent, that non-compete agreements run afoul of the National Labor Relations Act. Abruzzo’s memorandum stated that non-compete agreements interfere with employees’ exercise of rights to self-organize and other similar rights. It found that they punish employees for exercising their rights under the National Labor Relations Act to withhold labor from their employer. A strike or other economic weapons a union could use become greatly hampered if the workers face limitation in where they could find alternative employment should their efforts prove unsuccessful. The memorandum also stated that agreements that are similarly anti-competitive such as training repayment agreements, are likely unlawful as well.

While the memorandum did not specifically mention non-solicitation agreements, a subsequent National Labor Relations Board action has made clear that non-solicitation agreements fall within the crosshairs. In Cincinnati, the National Labor Relations Board has filed a complaint against a medical clinic and spa that had their employees sign both a non-compete and non-solicitation. While the non-compete and non-solicitation clauses are not special or unique in their character, nonetheless, the Board claims they are both a violation of the National Labor Relations Act.

These new rules and enforcement of new interpretations of the laws must receive close monitoring. This is especially true if a new administration takes office in 2024. Their continued maintenance would be unlikely in a Republican administration. Nevertheless, the increased scrutiny of these anti-competitive agreements only helps workers. They also continue an important trend to ban non-compete and similar agreements.

Have questions about how this might affect you or your loved one? Visit Hurm Law Firm’s website or call (216) 860-1922.