[US] Non-compete agreements violate labour law

[US] Non-compete agreements violate labour law
07 Jun 2023

On May 30, a US labour board official said that requiring workers to sign agreements not to join competing companies is usually illegal. The statement represents the latest move by government regulators towards limiting the practice, Reuters reports. 

In a memo to agency lawyers, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo said so-called "noncompete agreements" discourage workers from exercising their rights under US labour law to advocate for better working conditions.

Ms Abruzzo was an appointee of President Biden. In the memo, she stated that non-competes violate labour law "unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights."

To be specific, the pacts could prevent workers from resigning or threatening to do so to demand higher wages or other improvements at their workplace, Ms Abruzzo wrote. She added that agreements may also be lawful when they only restrict individuals' ownership interests in a competing business.

The NLRB general counsel reportedly acts as a prosecutor and brings unfair labour practice cases to the separate five-member board. It currently has a Democratic majority.

The US Federal Trade Commission enforces antitrust law. In January it proposed a rule that would ban companies from requiring workers to sign non-compete provisions. The proposal is still pending.

A 2021 academic study revealed that around 18 per cent of US workers, were subject to non-compete agreements. The figure included more than 13 per cent of workers earning less than $40,000 per year.

California, North Dakota and Oklahoma have reportedly banned non-compete agreements while about another dozen states have passed laws limiting their use.

Business groups have defended non-competes saying they are a crucial way for companies to protect trade secrets and that they promote competitiveness. However, many Democrats and worker advocates claim the agreements suppress wages and make workers less mobile.

Ms Abruzzo reportedly asked agency lawyers to send cases to her office involving arguably unlawful non-competes. Her office could potentially use one such case to ask the board to restrict or prohibit the use of non-competes.

Source: Reuters

(Links and quotes via original reporting)

On May 30, a US labour board official said that requiring workers to sign agreements not to join competing companies is usually illegal. The statement represents the latest move by government regulators towards limiting the practice, Reuters reports. 

In a memo to agency lawyers, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo said so-called "noncompete agreements" discourage workers from exercising their rights under US labour law to advocate for better working conditions.

Ms Abruzzo was an appointee of President Biden. In the memo, she stated that non-competes violate labour law "unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights."

To be specific, the pacts could prevent workers from resigning or threatening to do so to demand higher wages or other improvements at their workplace, Ms Abruzzo wrote. She added that agreements may also be lawful when they only restrict individuals' ownership interests in a competing business.

The NLRB general counsel reportedly acts as a prosecutor and brings unfair labour practice cases to the separate five-member board. It currently has a Democratic majority.

The US Federal Trade Commission enforces antitrust law. In January it proposed a rule that would ban companies from requiring workers to sign non-compete provisions. The proposal is still pending.

A 2021 academic study revealed that around 18 per cent of US workers, were subject to non-compete agreements. The figure included more than 13 per cent of workers earning less than $40,000 per year.

California, North Dakota and Oklahoma have reportedly banned non-compete agreements while about another dozen states have passed laws limiting their use.

Business groups have defended non-competes saying they are a crucial way for companies to protect trade secrets and that they promote competitiveness. However, many Democrats and worker advocates claim the agreements suppress wages and make workers less mobile.

Ms Abruzzo reportedly asked agency lawyers to send cases to her office involving arguably unlawful non-competes. Her office could potentially use one such case to ask the board to restrict or prohibit the use of non-competes.

Source: Reuters

(Links and quotes via original reporting)