John Stewart
Thu, 03/31/2022
With employees leaving their jobs in record numbers, many have dubbed this past year’s labor trend the “Great Resignation.” However, as at least one news outlet reports, the trend might be better named the “Great Renegotiation,” as many employees are leaving for positions with increased wages, more reasonable benefits, and better working conditions. One economics reporter has observed that “job turnover has been concentrated in hospitality and other low-wage sectors, where intense competition for employees has given workers the leverage to seek better pay,” and those who are free to resign and renegotiate “are getting significantly faster pay increases than people who stay in their jobs.”
Yet studies of the current labor market show that millions of Americans are not free to resign and renegotiate. The U.S. Treasury Department’s March 2022 report, “The State of Labor Market Competition,” notes that one-in-five workers is bound by a restrictive non-compete agreement. The Treasury Department further points out that “[u]nlike higher income workers, lower wage workers likely lack sufficient bargaining power to refuse a non-compete agreement. As a result, whereas non-compete agreements may increase top-earner wages at the expense of mobility, non-compete agreements appear to reduce both wages and mobility for lower-income earners.”
With the negative effects of non-compete agreements becoming clearer, the practice has come under increasing scrutiny. On July 9, 2021, President Biden signed an Executive Order “Promoting Competition in the American Economy,” which identified several anti-competitive employer practices including “[p]owerful companies requir[ing] workers to sign non-compete agreements that restrict their ability to change jobs.” The Order urged the FTC to use its statutory rulemaking authority to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” though did not give the FTC any specific direction. In the months ahead, it will be interesting to see what concrete regulatory or legislative action the federal government takes, if any, in furtherance of this goal.
Meanwhile, many state and local governments have taken action to limit or even ban the use of non-compete agreements. For example, in January 2022, Illinois expanded the application of its ban on non-compete agreements for “low-wage employees” from those earning federal minimum wage to employees expected to earn $75,000 or less annually. More boldly still, the District of Columbia’s “Ban on Non-Compete Agreements Amendment Act,” once effective, is expected to generally prohibit non-compete agreements in the District of Columbia and subject violators to significant statutory penalties. Since the ban’s enactment in January 2021, however, its effective date has been repeatedly pushed back, most recently on March 28, 2022, with the enactment of the “Ban on Non-Compete Agreements Applicability Emergency Amendment Act of 2022,” which sets the effective date on October 1, 2022.
For now, the enforceability of non-compete agreements remains a question that varies widely from state to state, despite the growing consensus that non-compete agreements depress wages and unfairly restrict worker mobility.
If you think your employer may be violating your rights with an unlawful non-compete agreement (or otherwise), or you have questions about how to negotiate with a prospective employer over the terms of your new employment, please contact us to speak with an attorney experienced in these matters. You can call us at 1-866-883-8860 or email us at info@mselaborlaw.com.
