A solution is once again in search of a problem. This time that “solution” is from a U.S. senator. Florida Sen. Mark Rubio has proposed an amendment to the Fair Labor Standards Act of 1938. The proposed bill is titled the “Freedom to Compete Act.”
The bill seeks to not only prevent employers throughout the country from prospectively entering into non-compete or other restrictive covenant agreements with low-wage workers, but it also seeks to invalidate existing employment agreements with those employees that might contain non-competes. The broad language in the proposed bill could also readily be interpreted to reach beyond “non-compete” agreements and encompass non-solicit and other types of restrictive covenant provisions.
Apart from the constitutional hurdles that the proposed bill would have to overcome (it seeks to invalidate existing agreements between contracting parties) the bill is a bad idea. The perceived problem, as stated by Sen. Rubio, is “[n]on-compete agreements that arbitrarily restrict entry-level, low-wage workers from pursuing better employment opportunities are egregious and out dated in the 21st-century American economy.” (Derby, Kevin. “Rubio Introduces Freedom to Compete Act.” Florida Daily 16 January 2019.)
The problem with that thinking is that non-compete agreements that “arbitrarily restrict” anyone are dealt with by existing state laws that limit enforceability of those kinds of agreements only where they are reasonable in scope and protect a legitimate business interest. All states that allow the enforcement of non-compete agreements have these types of protective limitations. Indeed, several recent high-profile cases involving attempted enforcement of non-compete agreements against low wage workers, including Amazon, Jimmy John’s, and Cushman and Wakefield, made headlines for all the right reasons and displayed clearly that state laws (along with bad publicity) effectively limit this type of threatened enforcement.
Perhaps more significantly, why would the federal government seek to insert itself in to the area of states’ rights on contract issues? Those states that choose to allow enforcement of restrictive covenants or limit their enforceability have already done so. Those cases that do draw attention to attempts to enforce restrictive covenant agreements against low-wage workers deserve that attention. Amazon, Jimmy John’s, and Cushman and Wakefield were all shamed into backing off the enforcement of those agreements. The state law legal limitations that are already in place on employers should cause pause to any employer seeking to enter into and then ultimately enforce such an agreement against a low-wage worker. The system already works. There is no need to add an unnecessary tool at the federal level.
Phillip Korovesis is an attorney and shareholder based in Butzel Long’s Detroit office. He is a litigation practice group leader and also serves as the chair of Butzel Long’s trade secret and non-compete specialty team, which focuses on trade secret, non-compete, and business tort litigation.