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Bill would prohibit non-compete agreements

Violations could bring penalties, private right of action

Posted May 16, 2018

Introduced in late April, the Workforce Mobility Act (SB 2782/HR 5361) would prohibit any company engaged in interstate commerce from using non-compete agreements.

The bill is fairly clear on this matter:

“No employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any employee of such employer, who in any workweek is engaged in commerce or in the production of goods for commerce (or is employed in an enterprise engaged in commerce or in the production of goods for commerce).”

The measure defines a non-compete as an agreement between an employer and an employee that restricts such employee from performing, after the employment relationship between the employer and the employee terminates, any of the following:

  • Any work for another employer for a specified period of time.
  • Any work in a specified geographical area.
  • Any work for another employer that is similar to such employee’s work for the employer that is a party to such agreement.

If enacted, the law would cover only those agreements signed after the law’s effective date.

For defining the terms “employee” and “employer,” the bill refers to the Fair Labor Standards Act; generally an employer is any person acting directly or indirectly in the interest of an employer in relation to an employee. An “employee” is any individual employed by an employer.

Employers may, however, enter into an agreement with an employee to not share any information (including after the employee is no longer employed by the employer) regarding the employer or the employment that is a trade secret.

The bill includes a requirement that employers post a notice informing employees that these agreements are illegal.

The provisions would be enforced by the U.S. Department of Labor. Violations could result in a civil fine of up to $5,000 for each employee injured by the violation, and for each week the employer is in violation. If an employee wins a private action in court, the employer would pay the costs of the action and reasonable attorney’s fees.

To further illustrate this type of trend, the Mobility and Opportunity for Vulnerable Employees (MOVE) Act, introduced in 2015, would have banned the use of non-compete agreements for employees making less than $15 an hour, $31,200 per year, or the minimum wage in the employee’s municipality, and would require employers to notify prospective employees that they may be asked to sign a non-compete agreement.

The Senate version of the Workforce Mobility Act was referred to the Senate Committee on Health, Education, Labor, and Pensions for consideration. The House version was referred to both the Judiciary Committee and the Committee on Education and the Workforce for consideration. Neither have much of a chance at being enacted, but the issue continues to be pursued on both a federal and state level.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS.

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