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New WH Report Signals Changes to Non-Competes Are Coming


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5/20/2016
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Relying on a recently released report from the U.S. Department of the Treasury, the White House on May 5, 2016 issued its own report setting forth its own view of the problems and challenges posed by non-compete agreements, particularly from the vantage point of employees - and what it intends to do to address those problems.

The White House's Concerns Regarding Non-Competes

Two places in the report summarize the White House's concerns regarding non-competes rather well:

  • "Although non-competes can play a beneficial role when used in a limited way, evidence suggests that in certain cases, non-competes can reduce the welfare of workers and hamper the efficiency of the economy as a whole by depressing wages, limiting mobility, and inhibiting innovation."

And, 

  • "In addition to reducing job mobility and worker bargaining power, non-competes can negatively impact other companies by constricting the labor pool from which to hire. Non-competes may also prevent workers from launching new companies. Some critics also argue that non-competes can actually stifle innovation by reducing the diffusion of skills and ideas between companies within a region, which can in turn impact economic growth. Non-compete agreements may also have a detrimental effect on consumer well-being by restricting consumer choice."

7 Problem Areas of Non-Competes that Various States Have Addressed

The Report then goes on to highlight seven (7) specific problem areas of non-competes that have been addressed, in one way or another, by various states.

Here's the list:

  1. Workers who are unlikely to possess trade secrets (i.e., low wage workers) who are nevertheless required to sign non-competes
  2. Workers who are only asked to sign a non-compete after accepting a job offer (thereby reducing their bargaining power)
  3. The lack of clarity to workers regarding the meaning and implications of the non-compete
  4. Overly broad non-compete agreements
  5. No consideration for non-compete beyond continued employment
  6. Non-competes that prevent workers from finding new work - even when they were fired without cause
  7. How non-competes restrict consumer choice

The Statistical Evidence Backing the White House's Concerns Regarding Non-Competes

Addressing the apparent overuse, or misuse, of non-compete agreements, the White House report cites a number of (apparently) telling statistics:

  • Only 24% of workers polled reported having actual trade secrets.
  • Nevertheless, nearly 1/6 of workers having less than a college degree or salaries exceeding $40,000 per year were still being required to sign non-competes
  • Despite apparently lacking any trade secrets, 18% of employees in the personal services and repair fields were still required to sign non-competes
  • More than 37% of workers are asked/required to sign non-competes - only after they accept the job offer (and can't easily leave)
  • In states, like California, where non-competes are unenforceable, employers are still having employees sign non-competes in large numbers (over 19%), which suggests the employers are relying on a lack of the employees' knowledge of the law

What the White House Plans to Do About It

The conclusion of the report concedes that, ultimately, this remains a State law, rather than Federal, issue. However, the Administration has signalled that it intends to suggest best practices and/or reforms that should be adopted by the individual states to better balance employer and employee interests.

 

 



Category: Non-Compete & Employment Agreements


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