Feds target non-compete clauses as unfair to workers
New York Attorney General Eric Schneiderman said Tuesday he’ll introduce legislation next year to curtail employers’ growing use of non-compete agreements that limit worker mobility and depress wages as the White House called on all states to take similar steps.
Schneiderman said his bill would prohibit non-compete agreements that bind employees under a certain wage threshold and are broader than needed to protect trade secrets. It also would require employers to provide the contracts to job candidates before making an offer and to pay additional compensation if they sign them. And his proposal would limit the duration of non-compete restraints, which typically prevent employees from working for rival companies for a limited period of time.
“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.
No degree? No problem as tight labor market changes the game
Separately, the White House issued a “call to action” for states to crack down on the unfair use of the agreements by approving limits similar to those proposed by Schneiderman. The White House also recommended banning the clauses for workers in certain occupations that promote public health and safety, and as well as those who are laid off or fired without cause.
“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 wrote in a blog post.
Non-compete clauses are intended to prevent workers with trade secrets from transferring them to rival firms. But the Obama Administration says they’re being wielded too broadly, with 18% of American workers, or 30 million, currently covered by the agreements. The pacts are restricting about 15% of workers without a college degree and 14% of those who earn less than $40,000 a year. They've even spread to low-wage workers in fast food and warehousing.
Low-paid workers are leading in wage gains
Earlier this year, the Jimmy John's sandwich chain agreed to stop requiring non-compete agreements as part of a settlement with the New York Attorney General's office. Schneiderman reached similar settlements with legal news site law360 and medical services company EMSI.
Although wage growth recently has picked up from the modest pace that has prevailed through the recovery, it remains lower than many economists expected in light of the near-normal 5% unemployment rate. Meanwhile, many businesses are struggling to find workers, and hold on to existing ones, in a tight labor market.
Last week, the Administration said it would criminally investigate charges that employers have colluded to hold down employee pay or to not poach each other’s workers.