Freedom To Compete Act (FCA)
On January 15, 2019 Senator Marco Rubio introduced the Freedom to Compete Act (FCA) into Senate. If it becomes law the bill would set a federal definition for non-compete agreements, work to make current non-competes unenforceable, and restrict companies from entering new non-competes. As the regulation and enforcement of non-compete agreements varies from state to state this bill creates a stream lined national regulation. The responsibility for its enforcement would fall under the jurisdiction of the Department of Labor and includes fines for employers who violates its terms. At this time the bill has only been introduced to Senate and referred to the Committee on Health, Education, Labor, and Pensions. It has not been passed by the Senate or the House nor has it been signed into law by the president.
In a press release Rubio stated, “Non-compete agreements that arbitrarily restrict entry-level, low-wage workers from pursuing better employment opportunities are egregious and outdated in the twenty-first century American economy”. Rubio continued, “My bill would empower these workers by preventing employers from using non-compete agreements in employment contracts. I hope my colleagues will join me in passing this bill, so we can enhance the upward mobility of our low-wage American workers.” The FCA works to protect vulnerable workers from non-compete agreements however it is also protecting trade secrets. It includes a clause that allows employees and employers to enter agreements that restricts the disclosure of trade secrets as long as those agreements are not non-competes.
Rubio’s press release also stated the FCA would “prevent employers from using non-compete agreements in employment contracts for certain non-exempt employees.” Specifically, the bill works as an amendment to the Fair Labor Standards Act of 1938 (FLSA). This act best known for dictating the 40-work week, regulating child labor, and creating the right to a minimum wage. As it is an act which protects those who work for hourly wages, professionals who receive salaries are generally exempt from the regulations of the FLSA. The FCA operates with these same exemptions. This means while low wage and entry-level workers are protected from non-compete agreements employees like executives and administers may not be.
Workforce Mobility Act (WMA) & End Employer Collusion Act (EECA)
The restriction of non-complete agreements seems to be a bipartisan issue. In April of 2018 Senator Chris Murphy, a Democratic senator from Connecticut, and Elizabeth Warren sponsored legislation entitled the Workforce Mobility Act (WMA) and the End Employer Collusion Act (EECA). The legislation package not only blocking non-compete agreements but also barring the use of no-poach agreements. The main argument the sponsors use to back their legislation is the claim that no-poach agreements violate American antitrust laws. Specifically, the first antitrust law Congress passed in 1890, the Sherman Act.
According to the Federal Trade Commission, the Sherman Act “outlaws ‘every contract, combination, or conspiracy in restraint of trade,’ and any ‘monopolization, attempted monopolization, or conspiracy or combination to monopolize’”. Essentially, the Sherman Act is in place to protect competition and to stop monopolization. No-poach agreements have constantly been found in violation of the Sherman Act, as they are agreements between companies to not hire each other’s employees. This is an agreement to not compete. However, under this law it is possible that non-compete agreements could be considered illegal too. This would be especially true if they are used to restrict “free and unfettered competition” or are used by a company to build a monopoly on a market.
However, the Sherman Act does not restrict every type of trade agreement, just that are thought to be unreasonable. This means to be considered a violation of antitrust laws non-compete agreements not only be a restriction on free trade but an unreasonable restriction. Some agreements between businesses, like price fixing or the division of markets, are always considered unreasonable; therefore, they are always considered illegal. However, in many other cases, such as non-compete agreements, what is or is not unreasonable is left up for interpretation.
It is clear both Republicans and Democrats find the restrictions of non-compete agreements unreasonable. Especially when it comes to the economic freedom of low wage works. However, currently their plans to regulate non-competes on a federal level have not come to fruition. Like the FCA, the WMA and the EECA have only been introduced to Congress and referred to the Committee on Health, Education, Labor, and Pensions.
In 2016, working for the U.S. Department of Treasury, the Office of Economic Policy completed a study on non-compete agreements entitled Non-compete Contracts: Economic Effects and Policy Implications. The study gives suggestion for how policymakers can non-competes practical and fair.
First, it suggests non-competes should be made transparent by employers. Employees should be aware that they are signing non-competes. In addition, they should be knowledgeable about the affect signing a non-compete will have on their future employment efforts. Finally, employees should understand the legality of their non-compete agreements.
Second, it is suggested that companies only use enforceable non-competes. This would require stopping the use of broad and vague language. Finally, it is suggested that companies are required to pay severance packages to those employees who honor their non-compete agreements. This would encourage employers to only use non-compete agreements when absolutely necessary. It also offers sense of security to former employees whose job searches are restricted by non-competes.