The past two years have marked a seemingly volatile time for non-compete law in the United States, traditionally a state issue. National political forces—the United States Department of the Treasury, the White House, and Senators Al Franken and Chris Murphy—showed an interest in attempting to limit the enforceability of non-competes. We have previously covered this shift here and here. But in 2017, that federal tide has turned with the arrival of the Trump administration.
Regulating non-competes has long been exclusively the domain of the states. But in 2015, Senators Al Franken and Chris Murphy introduced a bill to limit the use of non-competes in contracts with low-wage workers. In March 2016, the Department of the Treasury’s Office of Economic Policy issued a report titled “Non-compete Contracts: Economic Effects and Policy Implications.” It concluded that non-competes are harmful to the broader economy. Two months later, the Obama White House released a “Call to Action” encouraging states to reform and limit non-compete agreements.
If you’d been following those issues, you might be asking: What happened to them? What’s going to happen with them now? With a Republican White House as well as Congress, it would appear those days are over. To paraphrase former Speaker Tip O’Neill, all non-competes, like politics, will remain local.
While federal attention over the past two years spurred speculation about nationalizing regulation of non-competes, the specter of reversal by the new administration distracts from an underappreciated truth: the Obama administration’s actions in 2016 did not meaningfully change the status quo. The Treasury Department’s white paper and the Obama White House “Call to Action” merely sought to encourage state lawmakers to undertake non-compete regulation.
Employers should continue to focus on state-level regulation of non-compete provisions. Examples like the Illinois Freedom to Work Act, banning non-competes for low-wage employees, and Utah’s Post-Employment Restrictions Act, limiting non-competes to one year, reflect state attention to prohibiting anticompetitive provisions in employment contracts. As federal interest in regulation ebbs under President Trump, more states may take it upon themselves to regulate more aggressively. Employers need to remain familiar with non-compete legislation in jurisdictions where they employ.
Employers should continue to tailor their non-compete provisions to protect bona fide trade secrets. Even the Obama Treasury Department’s white paper acknowledged the genuine need for such protections. Linking your non-competes to protecting trade secrets heightens your chance of satisfying judicial scrutiny and will diminish legislative enthusiasm for curtailing non-competes altogether.