Legislation Reintroduced in Congress to Ban Non-Compete Agreements and Seeking to Go Even Further than the FTC’s Proposed Ban | Seyfarth Shaw

US Senator Chris Murphy (D-Conn.) and US Senator Todd Young (R-Ind.) on February 1st reintroduced the Workforce Mobility Act. The legislation would ban the use of non-compete agreements with some limited exceptions. US Representative Scott Peters (D-Calif.-52) and US Representative Mike Gallagher (R-Wis.-08) introduced the legislation in the US House of Representatives. US Senator Tim Kaine (D-Va.) and US Senator Kevin Cramer (RN.D.) co-sponsored the legislation. The bill was previously introduced in the House of Representatives in 2021.

“Across industries and income brackets, non-competitives are terrible for workers and a major drag on economic growth. It’s ridiculous we let companies hide behind these agreements as a means to depress wages and stave off competition. I’m glad the FTC has proposed a rule to ban the use of non-competes, but Congress should go even further and pass our legislation to protect workers and support entrepreneurs,” Murphy said in his statement.

According to Senator Murphy’s statement, the Workforce Mobility Act would:

  • Narrow the use of non-compete agreements to include only instances of a dissolution of a partnership or the sale of a business;
  • Charge the Federal Trade Commission and the Department of Labor with enforcement, as well as making explicit a private right of action in federal court;
  • Require employers to make their employees aware of the limitations on non-competes. The Department of Labor would also be given the authority to make the public aware of the limitations; and
  • Require the Federal Trade Commission and the Department of Labor to submit a report to Congress on any enforcement actions taken.

The proposed Act states that non-compete agreements are “blunt instruments that crudely protect employers’ interests and place a drag on national productivity by forcing covered workers to either be idle for long periods of time or leave the industries in which the workers have honed their skills altogether .” Additionally, it states that “enforceable non-compete agreements also reduce wages, restrict worker mobility, impinge on the freedom of a worker to maximize labor market potential, and slow the pace of innovation in the United States.” According to the Act, “[e]employers have access to legal recourses to protect their legitimate interests and property, including trade secret protections, intellectual property protections, and nondisclosure agreements that do not inflict broad collateral harm on the labor market prospects for workers.”

The Act provides that “no person shall enter into, enforce, or attempt to enforce a noncompete agreement with any individual who is employed by, or performs work under a contract with, such person with respect to the activities of such person in or affecting commerce. Such agreements will have no force or effect.”

A non-compete agreement is defined under the Act as:

an agreement between a person and an individual performing work for the person, that restricts such an individual, after the working relationship between the person and individual terminates, from performing—

(A) any work for another person for a specified period of time;

(B) any work in a specified geographical area; or

(C) any work for another person that is similar to such an individual’s work for the person that is a party to such an agreement.

The Acts provide exceptions for sellers of business entities, executives who enter into severance agreements in connection with the sale of a business limited in geographic scope and duration of one year, and partners who dissolve or dissociate from the partnership.

The Act states that it does not effect trade secret non-disclosure obligations that may exist.

Employers would be required to post notice of the Act to their employees.

The FTC and the DOL are charged to investigate and prosecute employers that attempt to enforce non-competes under the proposed Act, with a statute of limitations of four years. A violation of the Act would be treated as an unfair or deceptive act or practice prescribed under section 22 18(a)(1)(B) of the Federal Trade Commission Act.

The proposed Act would also provide a private civil federal right of action and permit recovery of “any actual damage sustained by the individual as a result of the violation; and in the case of any successful action, the costs of the action and reasonable attorney’s fees, as determined by the court.”

State AGs would also be permitted to pursue violations of the Act.

It remains to be seen what impact this proposed legislation will have on the FTC’s proposed new rule banning non-competes, which is currently in the comment period.

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