On November 14, 2019, the U.S. Senate Committee on Small Business and Entrepreneurship held a hearing to examine recently proposed bills that would regulate non-compete agreements at the federal level. Discussion during the hearing indicates that it may have the necessary support to move forward.
Pending Non-Compete Legislation
On October 15, 2019, Senators Chris Murphy (D-CT) and Todd Young (R-IN) introduced the 2019 Workforce Mobility Act, which would ban all non-compete agreements across the country, with limited exceptions involving the sale of a business or the dissolution of or disassociation from a partnership (see A Renewed Attempt in Congress to Eliminate Non-Compete Agreements, dated November 18, 2019). The Act would also require employers to notify employees of the law’s requirements, and would establish a comprehensive enforcement scheme empowering the Federal Trade Commission, the Department of Labor, and aggrieved employees to seek redress for violations of the law.
The Workforce Mobility Act constitutes a far more extreme approach to non-compete reform than Senator Marco Rubio’s Federal Freedom to Compete Act, which was introduced on January 15, 2019 and would only permit the use of non-competes with respect to FLSA-exempt executive, administrative, professional, or outside sales employees. While those FLSA exemptions are not completely predictive of an employee’s work experience or wage rate, the stated objective of Senator Rubio’s legislation was to protect “entry-level, low-wage workers[.]”
The Hearing on Non-compete Agreements and American Workers
Last week, the Senate Committee on Small Business and Entrepreneurship reviewed the 2019 non-compete bills at a hearing entitled “Noncompete Agreements and American Workers.” Testifying at the hearing were:
- Evan Starr — Assistant Professor of Management and Organization, University of Maryland School of Business;
- John Lettieri — President and Chief Executive Officer of Economic Innovation Group; and
- Keith Bollinger – A North Carolina resident who testified about the negative consequences that a non-compete agreement allegedly posed in his effort to pursue gainful employment.
Professor Starr’s research figured prominently in the Obama Administration’s State Call to Action, which urged state governments to impose strict limitations on the use of non-compete agreements. More recently, Professor Starr authored a brief entitled, “The Use, Abuse, and Enforceability of Non-Compete and No-Poach Agreements,” which further advocated in favor of non-compete reform. That brief was published by Economic Innovation Group — Mr. Lettieri’s organization. Notably, the hearing did not include testimony from any non-compete proponents.
The testimony of Professor Starr and Mr. Lettieri was largely supportive of the 2019 Workforce Mobility Act, which would ban non-competes completely in the traditional employment context. Both expressed the view that employers could protect their legitimate business interests through less restrictive measures, including client non-solicitation covenants, agreements barring the use or disclosure of trade secrets, and the enforcement of federal and state trade secret laws. Professor Starr and Mr. Lettieri also advocated for further measures to protect workers, including:
- Requirements obligating employers to educate their employees of the applicable (i.e., state-specific) non-compete laws;
- Requirements obligating employers to give advanced notice of any obligation to sign a non-compete agreement;
- The imposition of strict penalties on employers who imposed unlawful or overly burdensome non-compete agreements on employees; and
- Requirements that employers continue paying employees for the duration of any post-employment non-compete restrictions.
Senators who spoke during the hearing included: Marco Rubio (R-FL), Todd Young (R-IN), John Kennedy (R-LA), Mitt Romney (R-UT), Josh Hawley (R-MO), Ben Cardin (D-MD), Maria Cantwell (D-WA), Jeanne Shaheen (D-NH) and Mazie Hirono (D-HI). Of them, Senators Young, Hawley, and Cardin offered the strongest endorsements of the 2019 Workforce Mobility Act. Senator Rubio also appeared to accept the policy justifications behind a complete ban, although he closed the hearing by seeking to build a consensus around his own proposal to prohibit non-competes for “low-wage employees.” Of the remaining participants, Senators Romney and Kennedy were the only legislators to express opposition to federal non-compete reform.
The November 14 hearing offered a brief preview of Congressional attitudes towards federal non-compete reform. The coming months will offer further clarification as to whether, and to what extent, legislation has the prospect of becoming law. We will continue to update readers on any developments. Employers with questions about the lawfulness of their restrictive covenant agreements are encouraged to contact a Jackson Lewis attorney.