One of Obama Administration’s Final Mandates: Non-Competes Should Be The Exception, Not The Rule

2 minute read | November.16.2016

With all the hubbub over the Presidential election, it would not be hard to overlook some of the Obama administration’s final moves. Recently, the White House issued a call to action to state legislators to ban non-compete agreements for most classes of workers. In an era where even sandwich makers can be bound to a non-compete agreement, the White House is concerned about the overuse of non-compete agreements and the potential stifling effect of these agreements across the economy. According to the White House, 20 percent of U.S. workers are bound by non-compete agreements, including 14 percent of those earning less than $40,000 per year.

In its call to action, the White House contended that although “each state faces different circumstances, we believe that employers have more targeted means to protect their interests, that non-compete agreements should be the exception rather than the rule, and that there is gross overuse of non-compete clauses today. While the primary rationale of non-competes is to prevent workers from transferring trade secrets to rival companies, a considerable proportion come at the expense of workers, entrepreneurship, and the broader company.”

The White House urged state legislators to engage in one or more of the following actions:

  1. Ban non-compete agreements for certain categories of workers, including those who earn less than a certain amount of income, those in industries that promote public health and safety, those who are unlikely to possess trade secrets, and those who may suffer undue adverse impact such as workers who are involuntarily terminated.
  2. Improve the transparency and fairness of non-competes, including by presenting the non-compete prior to the job offer, giving consideration other than just continued employment in exchange for agreement to the non-compete, and having employers inform their employees of the laws in a more transparent way.
  3. Incentivize employers to write enforceable contracts. Here, the White House suggests that unenforceable non-competes should be subject to the “red pencil doctrine,” meaning the entire contract is void if there is an illegal provision and there is no opportunity to sever only the illegal provision.

It’s unclear whether states will respond to this call of action, although the Illinois Attorney General has applauded the White House’s comments. It’s also unclear whether a Trump administration will continue to promote the removal of non-competes for most workers. We will continue to monitor this issue in the final months of this administration and into the new administration.