The Obama administration is urging states to ban unnecessary non-compete agreements that can hinder wage growth and labor market competition. Illinois Attorney General Lisa Madigan, who has been active in the push to limit improper non-competes, commended the White House’s call to action.
The White House issued a call to action Tuesday for states to ban unnecessary non-compete agreements in an effort to boost wage growth, entrepreneurship and labor market competition.
Non-compete agreements, intended to safeguard trade secrets, bar employees from working at a competitor after leaving a job. Critics says non-competes are being misused and can hinder worker mobility.
The White House reports that 30 million workers are currently impacted by non-compete agreements, which now cover 15 percent of workers without a college degree and 14 percent of workers earning less than $40,000 a year.
As part of its call to action, the Obama administration is encouraging states to ban non-compete agreements for low-wage workers and other employees “unlikely to possess trade secrets.” Also, non-competes should not apply to workers who are laid off.
The administration further recommends that states prohibit employers from proposing non-competes after workers accept a job offer or promotion.
“Workers have been forced to sign non-competes in order to work at sandwich shops, doggy dare care and grooming services, summer camps, and warehouses,” Ross Eisenbrey, vice president of the Economic Policy Institute, wrote in a blog post reacting to the White House’s announcement. “None of these jobs involves trade secrets or any proprietary information that can justify restraining the ability of employees to seek better pay and working conditions somewhere else.
“Research comparing states that have and have not banned non-compete agreements or strictly limited their use indicates that non-compete agreements measurably depress wages,” he continued. “By discouraging startups by former employees, they also limit entrepreneurship and restrain productivity increases.”
Illinois Attorney General Lisa Madigan and state Sen. Jacqueline Collins (D-Chicago) were among six state-level elected officials who, as of Tuesday, have announced their support for the administration’s call to action.
“I applaud the White House for shining a light on non-compete agreements and how they can unfairly impact the lives of lower wage workers,” Madigan said in a statement. “We need to ensure that employees around the country have the ability to change jobs and pursue new job opportunities so they can build successful lives. My office will continue to address the overuse of non-compete agreements in Illinois.”
Madigan made news in June when her office sued Jimmy John’s over the “highly restrictive non-compete agreements” the sandwich shop chain imposed on its employees. Shortly thereafter, Jimmy John’s announced it would end its use of non-competes as part of a settlement with the New York attorney general’s office, which had also been investigating the issue.
The White House says non-compete agreements are generally banned in only three states: California, North Dakota and Oklahoma.
In Illinois, Gov. Bruce Rauner signed legislation in August banning the use of non-compete agreements for workers earning the minimum wage or less than $13 an hour. The measure, called the Illinois Freedom to Work Act, takes effect in January.
“It is nonsensical and immoral for low-wage employees in the United States to be confined to stringent agreements that prohibit them from finding meaningful employment within their field,” Collins said in a statement. “These types of practices increase the financial burden faced by many living in poverty. We are glad that the White House is taking action on this important issue and support the limitation of non-compete agreements, such as the Illinois Freedom to Work Act that eliminates non-compete agreements for all low-wage workers in Illinois.”