In recent months, two federal agencies announced their intent to use administrative authority to eliminate certain restrictive covenants contained in many employment-related agreements.
While the contractual provisions may have been intended to protect legitimate business interests, they have been abused to keep workers out of the workforce, reduce wages and avoid addressing workplace issues.
The proposed changes would empower employees, raise pay and increase market competition between companies.
In January, the Federal Trade Commission proposed a rule to ban noncompete clauses in employment agreements because they are being misused by employers to restrict fair competition.
Similarly, the National Labor Relations Board’s general counsel issued a memo in May declaring that noncompete clauses violate the National Labor Relations Act, a law intended to protect employees who take collective action with their co-workers, such as collective resignations, to improve working conditions.
In addition to the elimination of noncompete agreements, the NLRB’s general counsel announced in February that confidentiality and non-disparagement clauses also violate the NLRA as they prevent employees from engaging in protected concerted activities to improve working conditions.
The elimination of these provisions in employment-related agreements would undoubtedly keep employees working and improve working conditions.
The FTC estimates that the nation’s workforce would see an increase of $300 billion in their wages per year and expand career opportunities to 30 million workers.
Unleashing the workforce’s ability to leave current employers for competitors will increase corporate competition resulting in new innovation, higher-paying jobs and lower-priced goods.
Fortunately, we do not have to look outside of our own borders to see these predictions in practice. California has long prohibited the enforcement of non-compete agreements, yet it leads the nation in manufacturing, agriculture, and technology—industries that are largely dependent on trade secrets and confidential information.
California also has the highest GDP and ranks fifth in GDP per capita.
Florida, on the other hand, which has the most draconian noncompete statute in the nation, a statute dubbed “truly obnoxious” by an appellate court in New York, ranks 36th in GDP per capita.
While some employers may be concerned that the move will make them vulnerable to unfair competition, there are several federal and state laws that address the misuse of company trade secrets, patents, confidential information and computer systems. Florida’s common law also imposes on employees a duty of loyalty to their employers and creates causes of action for tortious interference and defamation when particularly nefarious means of competition are used.
While eliminating these contractual provisions makes good economic sense, that does not mean they are good for businesses’ bottom lines.
Organizations representing such businesses already are lining up to attack the proposed changes and you can expect a flurry of litigation over any proposed rules and NLRB decisions.
In the meantime, employees and employers are left with a great deal of uncertainty regarding the future enforceability of these contractual provisions.
James Poindexter is a partner and labor and employment law practitioner at Delegal & Poindexter and a member of the JBA board of governors.