A federal ban on noncompetes is the first step for a full revamp

This employment law column is by Gerald Sauer, a founding partner at Sauer & Wagner LLP.

Things are definitely looking up for people who still have jobs. When the Biden administration completes a thorough rewriting of employment laws as it’s pledging to do, workers will have more leverage. Raising the minimum wage to a sizable $15 per hour to reinforcing organized labor protections reveal the range of proposals coming from the White House.

While there’s this optimism, the fortunate tens of millions whose employment was spared during the pandemic now have to weigh the risk of looking for new work against the potential benefit in wages, opportunity or working conditions.

There are hourly and entry level employees all the way up those in the executive suite who are bound by burdensome noncompetes in their employment agreements. Lower wage workers in some states could be completely oblivious to the constraints of those clauses when hired, only learning the hard way when they go looking for a new job. Some noncompetes are not legally enforceable, and even so, workers can be confined in abusive and discriminatory workplaces because they signed that agreement. They favor a paycheck over no paycheck, and fear being sued.

These constraints range from barring workers from taking a job in a similar field. They may be forced to upend their life just to keep a job. They also might have to settle somewhere new just to keep the same career.

Companies receive little opposition from new employees when they sign the terms of these agreements. Those new hires merely seek the ability to pay rent, utilities and other essentials in exchange for the work performed. If they live in employer-friendly states, low-wage employees who’ve been fired might be barred from taking jobs that could improve their skills and future earning potential.

In 2016, then-Vice President Joe Biden advocated to eliminate noncompete clauses, saying workers “can’t reach their true potential without freedom to negotiate for a higher wage with a new company or find another job after they’ve been laid off.” The Department of the Treasury reported that these clauses in contracts reduced wages and wage growth over time.

Today, President Biden is crystal clear that he prefers getting rid of noncompetes in the employment context, with limited exceptions. In this pandemic era, it makes sense that a pro-worker administration would act to safeguard and grow hiring.

At the state level, there’s already been a slow movement away from noncompetes over the last few years. Companies like Amazon used an overly broad use of noncompetes to ban warehouse workers from taking a new job or starting a business anywhere globally in any line of Amazon business that the employee maintained for 18 months before leaving. In response, several states prohibited or drastically limited noncompete clauses.

New York law is not in favor of broad noncompetes, and most can’t be enforced in California. The District of Columbia adopted a near-universal prohibition on noncompetes, and North Dakota and Oklahoma allow them in narrow circumstances. In 2020, Virginia approved a partial ban on noncompetes for employees making up to $62,000 annually.

So does the noncompete clause have a reason to be in a work agreement? Employers can protect customer details and other proprietary information from rivals by using better tools, such as using trade secret and intellectual property laws. They also choose to offer promotions, raises and loyalty bonuses as incentivization for employees to stay for a specific period of time.

However, to litigate IP breaches it takes time and money. Noncompetes deliver an easy way for companies to cover themselves.

If noncompetes are still wanted, we should mandate that they be narrowly drafted, with reasonable time limits, and address valid employer concerns without building an all-purpose roadblock against employee mobility. This change would ease the challenges on most job seekers.

A type of federal legislation would bring welcomed consistency to employment laws and bring assurances to workers across the career and socioeconomic spectrum. However, even a Democratic majority leaves uncertainty that a noncompete ban will pass Congress.

Biden can still move toward achieving a ban, mainly by issuing an executive order that bans government contractors from using noncompetes. Also, Biden could appoint workers rights advocates to the Federal Trade Commission.

There’s been a growing call on the FTC to ban noncompetes, with the AFL-CIO, United Food and Commercial Workers International Union and more than 60 other organizations filing a formal petition to end most noncompetes. The legal director of the Open Markets instituted cites that several congressional Republicans have publicly called for action, while two Democrats on the FTC support a rule restricting noncompete clauses.

Finally, the time seems right for Congress and the Biden administration to do the right thing.

Regardless of what happens in Washington, all states should restrict noncompetes to specific, narrowly tailored circumstances without unreasonably hamstringing workers. Any noncompete that falls outside this scope should be presumed invalid unless the company can show why the clause is needed.

The next generation of noncompete clauses could be a far cry from what we’re used to. Now, more than ever, workers should have the freedom to work.

Gerald Sauer, a founding partner at Sauer & Wagner LLP in Los Angeles, is a veteran civil trial attorney who specializes in business, employment and intellectual property law.