Non-Compete Agreement Battle Continues Around Country - American Society of Employers - Michael Burns

Non-Compete Agreement Battle Continues Around Country

Non-compete agreements are a common employer approach to protecting their business from customer poaching, losing business process secrets, and losing valuable employees. These agreements have always been somewhat controversial because they can be used to restrict employment opportunities.

A New York Times articles cited a recent survey that indicates up to 20% of American workers are under a non-compete clause/agreement.

In most cases non-compete agreements must legally meet a reasonableness standard. They must not restrain a person’s employment beyond a reasonable geographic area, a reasonable scope of work, and of course a reasonable period of time. Historically non-competes are used for higher level employees (key employees), but lately some employers have arguably misused this employment agreement tool and applied it to jobs that make little sense to restrict employment (other than protecting the company from turnover). In Michigan, a submarine sandwich shop had sandwich makers sign a non-compete that sought to prevent employees from taking jobs at other local competitors. Because large chain sandwich shops have proprietary recipes, it is doubtful any “secret sauce” recipes would be lost. In that case, the non-compete agreement was being used to restrict employment – not protect employer secrets and clients.

Employers on the hiring side of things do not like fighting non-compete agreements. They do not like the threat of lawsuits against them and do not like losing employment candidates due to a possible law suit regarding a non-compete. This is what the employer that has the employee under a non-compete agreement wants. Future employment opportunities are curtailed, and it is tougher to leave the employer that has the non-compete agreement in place.

For almost as long as non-compete agreements have been used, common law has challenged onerous non-compete agreements/clauses as anti-competitive and a restriction on trade. This has led to a state legislative backlash that is rolling across the United States. States are changing laws to address the perceived inequities of non-compete agreements.

Michigan currently is considering a more restrictive law that would further limit the use of non-compete agreements. Michigan’s non-compete legislation is moderate compared to what other states are considering or have enacted. Michigan’s legislation would “downgrade” employer freedoms in current law to require employers to:

·       Provide applicants with written notice on requirements for a non-compete

·       Disclose the terms of the non-compete agreement in writing before hire       

·       Post the Act or a summary of its requirements in a conspicuous place in the worksite where accessible to employees

Further it would require an employer not to request or obtain a non-compete agreement from an employee or applicant who is, or would be hired as, a low-wage employee.  


"Low-wage employee “means an employee who receives compensation from the employer, excluding overtime, at a rate less than the greater of the following:

A.     $15.00 per hour

B.     150% of the minimum hourly wage established under section 4 of the Workforce Opportunity Wage Act 2014 PA 138, MCL 408.414

C.    Annual Compensation of $31,200 indexed for inflation

If this law passes it would put Michigan slightly left of center on laws restricting how far a non-compete agreement can go. On the far side of pro-employee laws stands California, who prohibits non-competes entirely. However, on the opposite side of the non-compete spectrum comes Idaho. Last year Idaho enacted a law that makes it easier to enforce a non-compete agreement.

State’s view non-compete agreements as protecting their assets, and employees are an asset. California sees the freedom on workers to move amongst employers as a benefit to moving its tech and other industries around. It’s easier to find good help if the help can move without restrictions. Idaho, that also has a developing tech industry business base looks at worker transience differently. They believe that if workers are allowed to leave employment easier, competitive business will not want to come to the state and invest in employees that can leave and compete against them or come to a state where it is difficult to keep well trained workers. The Idaho law seeks to target “key employees.” Key employees are those that are paid a higher rate and possess higher level positions within an organization.

 

Source: Noncompete Pacts, Under Siege, Find Haven in Idaho. New York Times 7/14/2017

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