Obama encourages ban on non-compete agreements for some workers

Some 20 percent of American workers are currently bound by non-compete agreements. Fourteen percent of them earn less than $40,000 per year, including fast food and warehouse workers, according to the White House.

David Goldman/AP/File
In this Friday, Jan. 2, 2015, file photo, a sign advertises hiring opportunities at a Jimmy John's sandwich shop in Atlanta, as an employee walks out to make a delivery. New York Attorney General Eric Schneiderman announced Wednesday, June 22, 2016, that the Jimmy John's sandwich chain has agreed to stop including non-compete agreements in hiring packets used for low-wage workers.

On Tuesday, the White House called on US states to ban non-compete agreements for certain workers, arguing that the contract conditions interfere with their job mobility and suppress wages. 

By seeking an end to non-compete agreements for low-wage employees who are not privy to trade secrets, the Obama administration hopes to make a more competitive labor market, support faster wage growth, and prevent workers from being put in situations where it's difficult to get a new job.

“We have the most dynamic, productive workers in the world, but they can’t reach their true potential without freedom to negotiate for a higher wage with a new company, or to find another job after they’ve been laid off,” Vice President Joe Biden said in a statement.

According to the White House, 20 percent of American workers are currently bound by non-compete agreements, 14 percent of whom earn less that $40,000 per year, including fast food and warehouse workers.

In addition to banning non-compete agreements for low-wage workers, the Obama administration’s recommendations also include a ban on non-compete agreements if they are not proposed before the job offer, or if a promotion is accepted by the employee, and a ban on such agreements for workers whose jobs promote public health or safety. In addition, the White House recommends that contracts should become void when workers are laid off or fired without cause, Reuters reports.

Nearly every state currently allows non-compete agreements, leading to frequent legal battles, but New York has led the way in terms of curtailing the use of non-compete agreements.

Eric Schneiderman, the state’s Attorney General, said on Tuesday that he would introduce state legislation next year to limit when such an agreement can be signed. With many of the same stipulations as the White House recommendations, Mr. Schneiderman also aims to require employers to pay additional compensation to employees if they sign non-compete agreements and to limit the length of time the contract is applicable, reports USA Today.

“Workers should be able to get a new job and improve their lives without being afraid of being sued by their current or former employer,” Schneiderman said in a statement.

Previously, Jimmy John's sandwich chain, the legal news site Law360, and medical services company EMSI each agreed to stop requiring non-compete agreements as part of a settlement with the New York Attorney General's office.

However, some businesses may need non-compete agreements in order to prevent employees with inside knowledge of trade secrets from working for rival companies. Therefore, the policy should not be a statewide ban on the agreements for whole sectors of the work force, Beth Milito, senior legal counsel at the National Federation of Independent Business, told Reuters.

"There need to be individualized assessments of the agreements that consider the industry and the geographical location," Ms. Milito told Reuters.

Material from Reuters was used in this report.

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