Non-competition agreements have long been under attack at the state level. Across the country, states have imposed limits on the use of covenants, particularly with respect to low-wage workers. While the District of Columbia recently overturned some elements of its non-competition ban (see this week’s companion article), DC local governments are just one of many local governments restricting the use of non-competition in various ways. Restrictions vary widely, from outright bans (in California, for example) to income restrictions (such as Illinois, Colorado, and Maine), to notice requirements and worker income protection (Massachusetts and New Jersey).
More and more states are also insisting that the right of the employees residence apply when determining the applicability of non-competition restrictions, regardless of where employer can be located. This fractured patchwork creates a minefield for employers with workers in multiple states and a remote workforce, as well as inconsistent obligations and outcomes among geographically diverse employees who work for a single employer.
A congressman steps in to level the playing field. Mike Garcia (R-CA) introduced the Restoring Workers Rights Act, a bill that would ban the use of non-compete agreements for non-exempt employees across the country. Structured under the Fair Labor Standards Act, the RWRA as currently proposed provides that workers who are paid by the hour and eligible for overtime pay cannot be subject to non-compliance agreements. competition. Crucially, the RWRA doesn’t just prohibit sweeping bans on working in an industry; he seeks to ban any restriction of a worker’s ability to work, including the prohibition of non-solicitation of client agreements. The bill even goes so far as to nullify any agreement made before the date the bill would become law.
This bill, first introduced on September 1, 2022, is in its early stages. Like all bills, it will be considered and subject to change as it moves through Congress, if it moves forward. Although the outcome is uncertain, it is clear that all levels of government are looking closely at post-employment restrictions. This is a good opportunity for employers to do the same. Businesses should put covenant reviews on their year-end housekeeping checklist. In particular, employers should consider the states in which employees live and determine whether the terms comply with the laws of those states. If these agreements are not up to date, revising these clauses should be at the top of the to-do list in 2023.