This week, the Obama Administration continued its ongoing efforts to curb what it considers to be the “gross overuse” of non-compete agreements. In a “State Call to Action,” the White House encourages legislatures to adopt certain recommendations for non-compete reform. Tuesday’s announcement follows the Obama Administration’s May 2016 report, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses” discussed in an earlier blog post, which highlighted the variety of ways workers may be disadvantaged by non-competes.
In the “Call to Action,” the President urges state lawmakers to adopt “best practice policy objectives” to reduce what it believes is the “misuse” of non-compete agreements, including the following:
- Banning non-competes for certain categories of workers, including those under a wage threshold; workers involved in promoting public health and safety; workers unlikely to possess trade secrets; and workers who would suffer undue adverse impacts.
- Requiring notice of a non-compete before a job offer or significant promotion has been accepted; providing consideration beyond continued employment for signing a non-compete; and better informing workers regarding non-competes.
- Considering the use of the “red pencil doctrine,” which renders a contract with unenforceable provisions void in its entirety, in order to incentivize employers to draft narrow, enforceable non-competes.
The Obama Administration also referenced California, Oklahoma, and North Dakota as the states in which non-competes are generally unenforceable. Notably, the White House specifically called out non-solicitation and non-disclosure agreements as good alternatives to more traditional non-competes. As an aide to state policymakers, the White House simultaneously issued a state-by-state report with key information regarding the enforceability of non-competes across the country.
As of Tuesday, lawmakers in Connecticut, Hawaii, Illinois, New York, and Utah had signed on to support the call to action for non-compete reform. New York Attorney General Eric Schneiderman announced that he would introduce state legislation next year to limit when a non-compete can be entered, including many of the White House’s recommendations. Earlier this year, Illinois’ Freedom to Work Act eliminated non-competes for low-wage workers in the state, one of the recommendations in the state call to action.
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