Freedom to Compete Act

In the last couple of years, there have been a number legislative efforts, at both the state and federal level, to limit the use of non-competes in the U.S. economy, particularly with respect to low wage and entry level workers.  Recent bills introduced in the Senate indicate there is a strong opportunity for a bipartisan path to enactment of such a law by the U.S. Congress.

Last month, Marco Rubio, one of Florida’s U.S. Senators and a previous Republican candidate for President, introduced legislation in the Senate – the “Freedom to Compete Act” – which would set limits on employers’ ability to enter into non-competition agreements with certain kinds of employees.  This bill, if enacted, would render void existing non-compete agreements, and outlaw any new non-compete agreements, between employers and employees classified as “non-exempt” under the Fair Labor Standards Act of 1938 (“FLSA”).  Generally, “exempt” workers under the FLSA are bona fide executive, administrative, professional and outside sales employees who are paid salaries and therefore are exempt from the FLSA’s minimum wage and overtime pay requirements.  “Non-exempt” workers generally are employees paid on an hourly basis who must be paid a minimum wage and time-and-a-half for overtime hours worked.

Last year, on April 26, 2018, another bill – the “Workforce Mobility Act” – was introduced in the Senate (along with a companion bill in the House) by Democrat Chris Murphy of Connecticut and co-sponsored by Elizabeth Warren of Massachusetts, a likely Democratic candidate for President in 2020.  The Workforce Mobility Act went a lot farther than the Freedom to Compete Act: it would have prohibited employers from enforcing or threatening to enforce non-compete agreements against any employee (not just “non-exempt” employees), and would have required employers to post prominently a notice that such agreements are illegal.  It also would have granted the Department of Labor powers of investigation and enforcement with respect to employers’ use of non-compete agreements and provided all employees with a private right of action against employers who continued to use non-compete agreements, allowing for compensatory damages, punitive damages and attorneys’ fees.

Of these two legislative bills, the Workforce Mobility Act was clearly the more draconian and far-reaching.  Perhaps because many non-competes, especially for more senior, well-compensated employees, are defensible for legitimate reasons including the protection of trade secrets, confidential information and customer relationships, the Workforce Mobility Act did not gain much traction and was not enacted.  Senator Rubio’s Freedom to Compete Act, however, by focusing on non-exempt workers, is more in line with legislative efforts in the states, and with enforcement actions by state Attorneys General.  As such, it has a better chance of garnering bipartisan support and being enacted.  Stay tuned.