White House Issues State Call to Action on Non-Compete Reform

The White House, Washington DC with two flags in front

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.

In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.

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