Thursday, January 31, 2019

Bad employment policies lead to new legislation

All the way back in October 2014, I wrote about an Illinois Jimmy John's franchisee that had required all of its employees to sign a Non-Compete Agreement as a condition of employment. 

I was not kind to this employer:

It's one thing to bind your managers and other high-level employees to a noncompetition agreement. It's another to require the same of your low-level sandwich makers and cash-register operators. The lower down the food chain you move, the harder it becomes to enforce these agreements.… [W]e're talking about sandwiches. What's the legitimate business interest this employer is trying to protect?

Yet, in the nearly half-decade since, employers have not heeded my advice. And, when employers fail, legislatures sometimes step in to fix.

Earlier this month, Republican Senator Marco Rubio introduced the Freedom to Compete Act [pdf]. It would amend the Fair Labor Standard Act to prohibit employers from entering into, extending, or renewing a non-compete agreement with any employee not covered by the FLSA's executive, administrative, professional, and outside sales exemption, and from enforcing, or threatening to enforce, a non-compete agreement against an such employee. It would also void any existing non-compete agreements that violate this law.

The Act does not apply to agreements that protect the disclosure of trade secrets.

According to Senator Rubio:

Non-compete agreements that arbitrarily restrict entry-level, low-wage workers from pursuing better employment opportunities are egregious and outdated in the twenty-first century American economy. My bill would empower these workers by preventing employers from using non-compete agreements in employment contracts. I hope my colleagues will join me in passing this bill so we can enhance the upward mobility of our low-wage American workers.

A laudable goal, for sure. Yet, this bill is not without its issues.

As my friend Eric Meyer points out at his Employer Handbook Blog, "The Act is silent about non-solicitation agreements." (Although there is argument to be made that its broad language could be interpreted to cover customer and employee non-solicitation agreements.) Perhaps this ambiguity is something that Congress can clarify in amendments, if this legislation has legs.

Another potential issue? Do we need to amp up the stakes on who qualifies as an exempt or non-exempt employee? Employers' risk in high stakes class/collective action wage and hour litigation is already off the charts. Do we really need to throw more fuel onto this fire?

Let me offer a better idea than the Freedom to Compete Act. Employers, use some discretion and common sense. Narrowly tailor your non-compete agreements to the specific interests you are trying to protect. And, if you don't have such an interest, forego the agreement altogether for that employee or group of employees. Otherwise, you will spend gaggles of money attempting to enforce an unenforceable agreement, or, worse, beg Congress to add more legislative hurdles to your management of your employees.

In the meantime, I'll continue to monitor this legislation and let you know if and when it warrants further discussion.

* Photo by Felix Mittermeier on Unsplash