Biden targets non-compete agreements, which restrict employment opportunities for millions of low-wage workers


Most American workers are hired “at will”: Employers owe nothing to their employees in the relationship except wages earned, and employees are free to resign at their convenience. As the rule is generally stated, either party can end the arrangement at any time for good, bad or none at all.

In keeping with this unconditional spirit, employees can evolve as they see fit – unless they are part of the tens of millions of workers tied by a contract which explicitly prohibits being hired by a competitor. These “non-competition clauses”May make sense to CEOs and other senior executives who own trade secrets, but may seem absurd when applied to low-wage workers like draftsmen in the construction industry. A 2019 business survey found that 29% of businesses paying an average wage below $ 13 an hour forced all their employees to sign non-compete agreements.

President Joe Biden seems to agree on the oppressive nature of non-compete contracts. On July 9, 2021, he asked the Federal Trade Commission to ban or limit them.

Like a specialist in labor law and policyI also have many concerns about non-compete clauses – such as how they tend to worsen power imbalance relationships between workers and bosses and suppress wages and discourage mobility in the labor market.

The birth of unlimited employment

Courts began to enshrine the OTC doctrine in the 19th century, making exceptions only for employees with fixed-term contracts. In Payne v. Western & Atlantic Railroad Co., the Tennessee Supreme Court ruled that a railroad foreman in Chattanooga had the right to prohibit his workers from buying whiskey from a merchant named L. Payne.

Payne had sued the railroad, saying he couldn’t threaten to fire employees to discourage them from buying goods from a third party. The court disagreed, arguing that the railroad had the right to fire employees for any reason – even one that involved dealing with an independent trader.

The notion of unlimited employment and the resulting lack of job protection quickly reached the level of constitutional mandate. The 1894 Pullman strike, which disrupted national rail traffic, prompted Congress to pass the Erdman Law four years later. This law guaranteed the right of railway workers to join and form unions and to engage in collective bargaining.

But the Supreme Court struck down this law in 1908. Writing for the majority in Adair v. United StatesJudge John Marshall Harlan explained that since employers were free to use their property as they wished, they could impose and enforce their own labor rules. The employees, in turn, were free to resign. The court summed up the law with the following statement:

“The right of a person to sell his work on such terms as he deems appropriate is, in essence, the same as the right of the buyer of work to prescribe the terms on which he will accept that work from the person offering to sell. this, ”Harlan wrote.

It may seem reasonable, but the Adair decision led to the proliferation of “yellow dog” contracts threaten workers with dismissal if they join or organize unions. The term denigrated those willing to accept such conditions, but the principle had generalized legal approval.

For three decades, the mutual agreement doctrine hampered legislation that would have protected workers’ rights. Even when a supervisor tried to seduce the wife of a long-time employee and dismissed the employee for revenge, the courts refused to protect the man from the loss of his job.

Labor rights and the law

With the passage of National Labor Relations Act in 1935, all workers and unions in the private sector were given the power to bargain collectively with employers. Subsequent collective agreements, such as that negotiated by the Steelworkers Organizing Committee with Carnegie-Illinois Steel in 1937, required employers to prove “just cause” before dismissing anyone covered by the contract.

the Civil rights laws of 1964 and 1991 addition of employment protections prohibiting discrimination based on race, sex, religion and national origin. And the Americans with Disabilities Act, adopted by Congress in 1990, guaranteed people with disabilities access to jobs with or without reasonable accommodation.

These laws and other measures, including modern exceptions to the mutual agreement rule, provide workers with some security.

But they offer no federal protection against non-competition clauses.

Non-competitors and low-wage workers

It is not known exactly how many American workers are subject to non-competition, but the Left Institute for Economic Policy estimated in a 2019 report. that’s about 28% to 47% of all private sector workers.

Employers’ leeway to impose these provisions varies considerably from state to state and is in motion.

California, North Dakota and Oklahoma are the only states to ban them outright, while a dozen prohibit them with certain types of low-wage workers. Washington DC, also prohibits all non-compete agreements.

At the same time, some states, such as Georgia and Idaho, have made their application even easier for businesses.

Critics have pointed out the drawbacks of non-competition clauses for unskilled labor.

“By locking low-wage workers into their jobs and banning them from looking for better-paying jobs elsewhere, companies have no reason to increase their wages or benefits,” said Illinois attorney general , Lisa Madigan, when she continued the Jimmy john’s fast food franchise in 2016 for having its employees sign non-competition clauses.

The channel subsequently agreed to drop his no-contests, who had also come under fire in New York. The clauses prohibited workers at the sandwich maker from working for other companies that made more than 10% of their income from “submarine, hero-type, deli-style, pita-style, and / or wrapped or wrapped sandwiches” for two years. years after leaving the Jimmy John Payroll.

President Biden signed an executive order that would prohibit or limit non-compete clauses.
AP Photo / Evan Vucci

Efforts to limit non-competition clauses

Given the mosaic of state laws – and signals that companies use non-compete even in places where they are prohibited – a uniform federal rule could clarify the situation and benefit both employees and employers.

The FTC has a range of options, from banning non-compete clauses altogether to limiting their use to executives and others who may hold trade secrets or other confidential information. The agency may require that the clauses have certain due process protections, such as a right to contract dispute arbitration.

Executives who have signed non-competition clauses already benefit from this kind of protection, not to mention the lucrative buyout provisions.

If lower paid and less prestigious employees are not free to find new jobs, I believe their bosses have a corresponding duty to grant them the rights enjoyed by people at the top of the corporate ladder, especially dispute resolution by independent third parties.

This is an updated version of an article originally published on August 23, 2017.

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