One of the major issues pushed by President Obama has he completes his final year in office is proving to be non-compete reform. Earlier this year, the White House published a report that was generally critical of the growing use of non-compete agreements in the American workforce. This week, the White House continued its efforts to reduce the prevalence of non-compete agreements with a “call to action” for state changes. Along with the call to action, the White House also released a state-by-state summary guide of non-compete laws in the states.
The primary cause for concern identified by the President’s call to action is its claim that widespread use of non-compete agreements limits wage growth and creation of new businesses. While the President’s call to action identifies the “primary rationale of non-competes is to prevent workers from transferring trade secrets to rival companies,” this isn’t necessarily accurate. Most states, including Wisconsin, have trade secret laws that prohibit misappropriation of qualifying information. In this author’s experience, the main reason employers seek non-compete protections is to protect relationships employees may have with customers or clients and/or protect knowledge of internal business information that is important but may not rise to the level of trade secrets.
The President’s call to action asks states to enact legislation that accomplishes three main objectives. First, ban non-compete agreements altogether for certain workers, such as lower wage earners, certain classes of occupations, and individuals terminated without cause. Second, place new requirements on an employer’s ability to agree to non-compete terms with an employee. The President’s suggestions include requiring non-compete terms to be presented before a job offer and providing more benefits to the employee than just employment in itself. Third, promote a court’s ability to void agreements entirely where any part of the non-compete terms is considered to be overbroad and unenforceable.
Change in the direction of the President’s preference is unlikely to come to Wisconsin soon. The most recent efforts at restrictive covenant legislation have focused on making non-compete agreements easier, rather than more difficult, to enforce. This proposed legislation did not pass and some business leaders have even come out against non-compete agreements in the name of improving Wisconsin’s economy. Whether this proposal resurfaces remains to be seen in 2017.