Federal Lawmakers Consider Ban on Noncompetes

Employment Law

Continuing a crackdown on noncompetes at the federal level, a new bill introduced in the House of Representatives would ban noncompete agreements nationwide for nonexempt employees under the Fair Labor Standards Act (FLSA).

The Restoring Workers’ Rights Act, introduced by Rep. Mike Garcia (R-Calif.), would amend the FLSA to prohibit noncompete agreements that “restrict such employee[s] from performing, after the employment relationship between the employer and employee terminates, any of the following:

  1. Any work for another employer for a specified period of time.
  2. Any work in a specified geographical area.
  3. Any work for another employer that is similar to such employee’s work for the employer that is a party to such agreement.”

H.R. 8755 would also void any noncompete agreement entered into before its date of enactment and prevent employers from enforcing, or threatening to enforce, any noncompete agreements with employees.

The proposed law would not impact agreements between employers and employees to protect trade secrets, however, including after the employee is no longer employed by the employer.

The measure, which has related legislation in the Senate—the Freedom to Compete Act, or S. 2375—was referred to the House Education and Labor Committee.

According to Rep. Garcia, the bill “will foster economic competition and level the playing field for workers, resulting in better opportunities and higher wages by banning noncompete agreements for lower to middle income workers.”

The proposed legislation tracks a movement at the federal level to crack down on noncompetes.

In January 2021, President Joseph Biden signed an Executive Order aimed at promoting competition in the U.S. economy, featuring a total of 72 initiatives by more than a dozen federal agencies.

Notably, one of the directives encouraged the Federal Trade Commission to ban or limit noncompete agreements, as well as prohibit “unnecessary occupational licensing restrictions that impede economic mobility” and, together with the Department of Justice, strengthen antitrust guidance “to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.”

Why it matters: Employers should keep an eye on the federal legislation, just one of many efforts at the federal level to crack down on noncompete agreements.



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