Proposed Federal Noncompete Law

Federal Noncompete Bill - screen shotNoncompete law is a creature of state regulation. As such, no surprise, we have 50 variations (really 51, when you factor in DC – albeit 3 states (California, Oklahoma, and North Dakota) prohibit employee noncompetes altogether, so it’s more like 48 variations). See BRR’s 50-state summary chart. (Note that the chart is in the process of being updated to reflect a variety of developments since its last update.)

Well, we may be on the verge of a 51st variation (or 49th, if you’re keeping accurate count).

Specifically, despite the state-based nature of these laws, yesterday (June 3), U.S. Senators Al Franken (D-Minn.) and Chris Murphy (D-Conn.) (with cosponsors Senators Elizabeth Warren (D-Mass.) and Richard Blumenthal (D-Conn.)) proposed federal legislation to limit the use of noncompetes for low-wage employees for companies involved in interstate commerce. (Does anyone know of any companies not involved in interstate commerce at this point?)

The Bill is entitled the ‘‘Mobility and Opportunity for Vulnerable Employees Act’’ (or the ‘‘MOVE Act’’) and prohibits the use of covenants not to compete (defined in the bill) for “low-wage employees,” i.e., employees earning the greater of (subject to inflation) $15 per hour or the applicable state or local minimum wage rate or $31,200 per year, but excluding any salaried employee earning (subject to inflation) more than $5,000/month for 2 consecutive months. (It also requires notice of the Act in a conspicuous place in the workplace and is clear that it applies only to agreements entered after the enactment of the Act.)

Thresholds, notice, and timing requirements aside, the Bill is somewhat unclear on its scope. Specifically, it is unclear whether it applies only to true noncompetes (i.e., agreements that restrict someone from working for a particular category of employer, in a particular role, in a particular area, for a particular period) or to all restrictive covenants (including nonsolicitation agreements, no-poach/no-raid agreements, nondisclosure agreements, etc.)

In this regard, the language (in section 2(2) of the Bill) defining a covenant not to compete states as follows:

“an agreement (A) between an employee and employer that restricts such employee from performing

(i)  any work for another employer for a specified period of time;

(ii)  any work in a specified geographical area; or

(iii)  work for another employer that is similar to such employee’s work for the employer included as a party to the agreement . . . .”

So, for example, is a restriction on the employee soliciting (or providing services to) certain customers a restriction on the employee “from performing . . . any work for another employer” or (perhaps less likely) “from performing . . . work . . . that is similar to such employee’s work for the [prior] employer”? The answer is, at this time, unclear.

The Secretary of Labor is charged with enforcement of the Act and may impose civil fines up to $5,000 for each noncompete violation for each affected employee and $5,000 for failure to post the appropriate notice.

We will keep you posted on the developments.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s