On October 25, the White House issued a “call to action” on non-compete agreements. After surveying the use of non-competes, the White House determined that many of these “agreements” are actually not the product of an agreement, with few workers seeking counsel or attempting to negotiate the terms before signing.
Indeed, many workers only learn that they are bound by a non-compete agreement after they leave their employer. According to the White House study, non-competes affect almost one in five U.S. workers, across all industries. The prevalence of these agreements raises concern that the restraint on trade that non-competes impose is not justified and hurts the economy.
As a result of its study, the White House called on state legislatures and policymakers to: (1) limit the use of non-compete agreements to situations where they are truly necessary and ban non-compete clauses for certain categories of workers, such as those earning less than a certain wage threshold, those in occupations that promote health and safety, those less likely to possess and use trade secrets, and those who have been terminated without cause; (2) improve transparency and fairness of non-competes by providing consideration above and beyond continued employment; and (3) encourage employers to write enforceable non-compete agreements and promote the use of the “red pencil doctrine,” which voids contracts in their entirety when a provision is deemed unenforceable.
Last year, a Michigan House Bill proposed to void non-compete restrictions between an employer and employee, with certain exceptions, such as the sale of a business. This outright ban on non-compete agreements is unlikely to pass. It is unclear whether the Michigan legislature will heed the White House’s call and propose a bill in line with the White House recommendations.
Employers should carefully consider the scope of their non-compete agreements and speak to an employment attorney about drafting agreements in light of increasing review of these restrictions.
Practice AreasLabor, Employment, Employee Benefits and ERISA