Non-compete clauses (also called California non-compete agreements) affect roughly 25 percent of the U.S. working population – but they aren’t enforceable in California. Meanwhile, they’re a major issue for workers throughout the rest of the country. But that could soon change.
For those who may be unfamiliar, a non-compete clause is a type of employment contract that prohibits employees from accepting new job opportunities for a period of time after leaving the employer with whom they have the contract. They’re usually limited to similar lines of work and/or competing businesses within a certain geographic area.
While this is less of an issue for workers whose jobs are highly technical and well-paid, these same provisions can be very tough on lower-paid workers. One analysis showed that more than half of workers who sign non-compete clauses are non-salaried, hourly wage workers – about 15 percent of them earning less than $40,000 annually.
Non-compete clauses can also ban workers from:
- Launching their own company in the same or similar industry.
- Reaching out to former customers.
- Using the skillsets you acquired on the job.
- Publicly discussing whistleblower actions.
- Revealing or making money from the employer’s trade secrets.
While some of these are more reasonable than others (ex-employees revealing trade secrets would be a problem for any employer), others risk stifling free markets.
Recently, the U.S. Federal Trade Commission proposed a new rule that would ban employers from imposing non-compete clauses on workers, calling the practice exploitative. If the rule goes into effect, it could potentially expand job opportunities for some 30 million Americans and increase wages by as much as $300 billion annually.
The new rule would make it unlawful for employers to enter into or attempt to enter into a non-compete with a worker. It would also be forbidden to maintain an existing non-compete agreement or to make an employee believe they are subject to a non-compete clause.
The New York Times recently zoomed in on this issue to show how problematic this issue is for broadcast journalists, meteorologists, and even behind-the-scenes employees like producers. Despite the high profile of the job, most local television station employees are paid modestly – but most are required to sign non-compete agreements. So if someone is miserable in a low-paying broadcast station position, they may be effectively stuck if they have a non-compete clause unless they move far away or work in a completely different industry. Very often, that appears to be what happens, and it’s exacerbated by the consolidation of broadcast companies. Few smaller, independent outlets still exist.
In California, such agreements are not enforceable – but that doesn’t necessarily mean they aren’t introduced. As noted by California Attorney General Rob Bonta, this can have a chilling effect on workers pursuing new job opportunities with better wages and working conditions. Non-compete clauses – particularly for lower-wage workers – mean that companies have less incentive to treat their workers well, pay them fairly, and improve workplace safety. Workers who have been subjected to employment discrimination or sexual harassment may feel they have no choice but to endure it because they won’t be able to land work elsewhere – particularly if they own a home and/or have kids in a local school district. It’s also a drag on fair competition between companies because better-operated businesses are deprived of potentially excellent employees – who are afraid they can’t leave, despite these agreements not being enforceable.
State law extends to employers who aren’t located in California but employ workers who live in this state.
As our Los Angeles employment lawyers can explain, the one exception to California’s prohibition on non-compete clauses is when such agreements are made between two business partners.
Contact the employment attorneys at Nassiri Law Group, practicing in Newport Beach, Riverside and Los Angeles. Call 714-937-2020.
FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition, January 5, 2023, FTC