Non-compete agreements have long been under attack at the state level. Across the country, states have put limitations on the use of restrictive covenants, particularly with respect to lower wage workers. While the District of Columbia has recently rolled back some elements of its proposed not-compete ban (see this week's companion article), local governments in D.C. is just one of a number of local governments that are limiting the use of non-competes in various ways. The restrictions vary widely, from outright bans (in California for example), to income restrictions (such as Illinois, Colorado, and Maine), to advance notice requirements and income protection for workers (Massachusetts and New Jersey).
More and more states are also insisting that the law of the employee's residence apply when determining the enforceability of non-compete restrictions, regardless of where the employer may be located. This fractured patchwork creates a minefield for employers with workers in multiple states and remote workforces, as well as creating inconsistent obligations and outcomes among geographically diverse employees who work for a single employer.
One member of Congress is stepping in to level this playing field. Mike Garcia (R-CA) has introduced the Restoring Workers Rights Act, a bill that would ban the use of non-competition agreements for non-exempt employees across the country. Structured as part of the Fair Labor Standards Act, the RWRA, as currently proposed, provides that workers who are paid hourly and eligible for overtime compensation cannot be subject to non-compete agreements. Critically, the RWRA does not just bar wide prohibitions against working in an industry; it seeks to ban any restraint on a worker's ability to work, including banning customer non-solicitation agreements. The bill even goes so far as to nullify any agreement that has been entered prior to the date the bill would become law.
This bill, first introduced on September 1, 2022, is in its earliest stages. Like all bills, it will be scrutinized and subject to amendment as it winds its way through Congress, if it progresses at all. While the outcome is uncertain, it is clear that all levels of government are taking a close look at post-employment restrictions. This is a good opportunity for employers to do the same. Businesses should place restrictive covenant reviews on their year-end housekeeping list. In particular, employers should consider the states in which the employees live and whether the covenants comply with those states' laws. If these agreements are not up to date, revising these covenants should be at the top of the 2023 to-do list.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
