Non-Compete Agreements For Low-Wage Workers Under Fire

By Robert G. Chadwick, Jr., Managing Member, Seltzer, Chadwick, Soefje & Ladik, PLLC.

According to a University of Michigan Law & Economic Research Paper last revised on January 19, 2019, post-termination non-compete agreements “are more likely to be found in high-skill, high-paying jobs, but they are also common in low-skill, low-paying jobs.”

California is famous for outlawing virtually all covenants not to compete for employees. Historically, most other states have required only that such covenants have reasonable limitations as to time, geographical area and scope of activity to be restrained.

Increasingly, however, states are also limiting the types of jobs that may subject to a non-compete agreement. A Massachusetts law which became effective on October 1, 2018 provides that non-compete agreements cannot be enforced against an employee who is classified as non-exempt under the FLSA. An Illinois law which became effective on January 1, 2017 bans covenants not to compete for low-wage employees whose “earnings do not exceed the greater of (1) … the minimum wage required by … law or (3) $13 per hour.”

Other states, including New Hampshire and New Jersey, are considering similar legislation making non-compete agreements unenforceable against low-wage workers.

At the federal level, legislation limiting jobs subject to a non-compete agreement was first proposed by Democratic Senator Christopher Murphy in 2015. Earlier this month, Marco Rubio became the first Republican Senator to propose such legislation with the introduction of the Freedom to Compete Act. In a January 15, 2019 press release, he proclaimed: ““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that arbitrarily restrict entry-level, low-wage workers from pursuing better employment opportunities are egregious and outdated in the twenty-first century American economy.”

Senator Rubio’s bill seeks to amend the Fair Labor Standards Act (“FLSA”) to (1) void any non-compete agreement with an employee entered into before enactment, and (2) prohibit any non-compete agreement with an employee after enactment.  The term “non-compete” agreement is broadly defined as an agreement “that restricts [an] employee from performing, after the employment relationship … terminates “[a]ny work for another work for another employer for a specified period of time”, “[a]ny work in a specified geographical area”, or “[a]ny work for another employer that is similar to such employee’s work for the employer that is a party to such agreement.”

As with other provisions of the FLSA, Senator Rubio’s bill states that any employee employed in a bona fide executive, administrative or professional capacity, or in the capacity of outside salesman, would not be protected by the proposed amendment. Also, the proposed legislation clarifies that it does not “preclude an employer from entering into an agreement with an employee to not share any information (including after the employee is not longer employed by the employer) regarding the employer or the employment that is a trade secret, as defined in section 1839 of title 18, United States Code.”

The genesis of the movement to ban non-compete agreements for low-wage workers appears to be an October 15, 2014 Huffington Post article which ridiculed Jimmy Johns for including non-compete agreements in hiring packets for low-wage employees.  The practice ultimately prompted (1) a class action suit, (2) investigations by, and settlements with, the States of Illinois and New York, and (3) legislative initiatives to curb such practices by other employers.

Non-compete agreements for low-wage workers have rarely been a good idea for employers. Non-compete agreements are generally justified as necessary to protect an employer’s good will, trade secrets or specialized training. Typically, only management and sales employees are privy to such information.  Asking low-wage employees to sign non-compete agreements can thus strain the credibility of a claim that their enforcement is necessary as to management and sales employees. That such agreements are now the target of legislative efforts is simply another reason to avoid them.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at rchadwick@realclearcounsel.com

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Employers Should Be Monitoring “Right to Disconnect” Initiatives

By Robert G. Chadwick, Jr., Managing Member, Seltzer, Chadwick, Soefje & Ladik, PLLC.

As many employers already know, states and municipalities have recently been at the forefront in enacting legislation to protect the rights of workers. Previous articles on this blog have highlighted new laws governing predictive scheduling, state-specific sexual harassment preventionnon-disclosure agreements, job candidate screening, paid sick time, and other terms and conditions of employment.

So what other legislative initiatives should employers be monitoring? Based upon a bill scheduled this week for hearing by the New York City Council, “right to disconnect” initiatives should certainly be on this list.

Under the proposed New York ordinance, it would be unlawful for a covered private employer “to require an employee to access work-related electronic communications outside of such employee’s work hours, not including overtime, except in cases of emergency.” The term “electronic communications” includes “electronic mail, text messages, or other digital means of conveying data electronically.”

Under the proposed ordinance, a covered employer would face a fine of $250 “for each instance of an employee being required to access work-related electronic communications outside of the standard work hours.” For an employee terminated in violation of the proposed ordinance, available remedies include “reinstatement” and “full compensation including wages and benefits lost.”

The proposed ordinance would take effect a mere 120 days after its enactment.

The New York City initiative comes on the heels of “right to disconnect” laws enacted in 2017 in France and Italy.  India is also currently considering a “right to disconnect” law.

Whether or not New York City enacts the proposed ordinance, it is likely states and other municipalities will take notice of the arguments cited in favor of enactment. These arguments include quality of life away from work, which has already been successfully  cited as a reason for predictive scheduling ordinances. Even if New York City does not pass a “right to disconnect” law, another jurisdiction will likely do so.

As previously advised on this blog, compliance and risk management strategies by employers must adapt to the ever-changing legal landscape, especially at the state and local level.  This landscape can change in months, not years. The price of not being diligent in monitoring this landscape may be liability for fines, damages or worse.

Robert G. Chadwick, Jr. frequently speaks to non-profit organizations regarding labor & employment issues. To contact him for a speaking engagement please e-mail him at rchadwick@realclearcounsel.com