Non-compete agreements have a long, conflicted history under the law. In the first known case on the topic—John Dyer’s Case from 1414!—an English judge found that a non-compete agreement was an unenforceable restraint on trade. The judge felt so strongly about that conclusion that he wrote: “By God, if the [party seeking to enforce the non-compete] were here, he would go to prison until he paid a fine to the King.” Ultimately, this skeptical view of non-compete agreements did not persist. In the ensuing years, American law developed to its current state, where, with some exceptions, courts enforce reasonable non-compete agreements if they are justified by a legitimate business interest.
Fast-forward 600 years from John Dyer’s Case, and what was old is new again. On October 16, 2019, Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) introduced Senate Bill 2614, entitled the Workforce Mobility Act of 2019 (WMA). If enacted, the WMA would ban nearly all employee non-competes in the United States, except for a limited category of non-competes entered into as part of certain business transactions.
While there are no threats of prison time (or fines to the king), the WMA would represent a return to the past and a radical restatement of non-compete law as currently exists in most states. Below, we look at the provisions and implications of the WMA, assess its odds of passing, and provide some considerations for the future.
What Does the WMA Say?
The WMA generally prohibits any company from entering, enforcing, or threatening to enforce a non-compete agreement with any individual who works for the company. The bill defines a “non-compete” agreement as any agreement between a company and a worker that, following the end of the working relationship, prohibits the worker from:
(1) “any work for another person”;
(2) “any work in a specified geographic area”; or
(3) “any work for another person that is similar to such individual’s work for [the former employer].”
Although not explicitly stated, the breadth of this definition means the WMA could prohibit non-solicitation agreements (e.g., agreements prohibiting solicitation of certain clients or employees) in addition to non-compete covenants prohibiting competition generally.
The bill does contain exceptions. Companies would be permitted to enter non-competes:
(1) with individuals that sell a business;
(2) as part of severance agreements with certain statutorily defined senior executive officials that are executed as part of the sale of a business (however, the non-compete can be no longer than 12 months and the employee must receive at least 12 months’ salary in severance); or
(3) as part of the dissolution of a partnership or the buyout of an individual’s partnership interest. Additionally, the WMA does not prohibit business-to-business non-competes, which are common in purchase transactions.
The WMA gives enforcement authority to the Federal Trade Commission and the Department of Labor. The bill also creates a private cause of action that allows workers to file lawsuits and seek damages and attorneys’ fees in federal court for any violation of the WMA.
If Passed, What Are the Implications of the WMA?
If the WMA were to become federal law, it would have sweeping implications for employers and workers. Most principally, the WMA would ban employee non-compete agreements in the vast majority of circumstances. Currently, non-compete provisions are frequently found in employment agreements, confidentiality agreements, severance agreements, stock option agreements, and other equity compensation arrangements. The WMA would generally prohibit these practices.
The WMA would also completely reorder the legal framework for non-compete agreements. If passed, the WMA would be the first federal law regulating the subject-matter. Presently, state law controls. This has resulted in significant state-to-state differences in the standards for enforcing non-compete provisions. The WMA would replace this state-law patchwork with a uniform federal standard. While many stakeholders and practitioners have long sought a single, nationwide standard, critics question whether the standard set by the WMA sufficiently protects legitimate interests a business may have in reasonably restricting unfair competition.
Will the WMA Become Law?
The future prospects of the WMA are uncertain. History and legislative gridlock in Washington both suggest the bill faces an uphill battle. Legislators have previously (and unsuccessfully) tried to regulate non-compete agreements at the federal level. In fact, a predecessor of the WMA was introduced in 2018 and died during the legislative session.
On the other hand, other indicators suggest that the WMA could be a rare moment of bipartisan cooperation. Non-competes have increasingly drawn scrutiny from governmental agencies. On October 28, 2019, a Republican-appointed commissioner on the Federal Trade Commission announced the agency would launch a study on the effect of non-compete agreements on employee mobility. Additionally, in 2018, Senator Marco Rubio (R-Fla.) introduced the Freedom to Compete Act, which sought to prohibit non-compete agreements with employees classified as non-exempt under the Fair Labor Standards Act. Finally, the WMA was introduced by a bipartisan pair of senators, Chris Murphy (D-Conn.) and Todd Young (R-Ind.). Passage is by no means certain, but these factors suggest there could be a window for Congress to do so.
For now, the Workforce Mobility Act is only a bill and will remain that way until it is passed and signed into law. The coming months will determine its fate, and Jackson Walker will provide updates on any significant developments.
David Schlottman is an adviser and litigator who focuses on complex cases involving employees, the workplace, and related business disputes. He has wide-ranging experience in helping clients with business problems and lawsuits involving wage-and-hour issues, employee competition, theft of trade secrets, contract claims, compensation disputes, employment discrimination and retaliation, and union-related disputes. In addition to his practice, David serves on the leadership councils for both the State Bar of Texas Labor and Employment Law Section and the Labor & Employment Law Section of the Dallas Bar Association. He has been recognized in the labor and employment field as a “Rising Star” by Super Lawyers and one of the “Best Lawyers in Dallas” by D Magazine.
The opinions expressed are those of the author and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.