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Attorneys general come out against employee noncompete agreements

July 17, 2019

Attorneys general from 17 states and the District of Columbia called for the Federal Trade Commission to consider prohibiting employee noncompete, non-solicitation and no-poach agreements.

At a minimum, they urged the FTC to consider bans on intra-franchise no-poach agreements, noncompete agreements for low-wage workers and a ban on noncompetes involving “multi-sided platforms” such as human cloud platforms.

The attorneys general made their case in a letter published on Monday.

“It is important in a constantly changing economy for workers to be able to advance their careers, develop professionally, and seek better compensation when there are opportunities to do so,” Maine Attorney General Aaron Frey said in a statement. “Noncompete clauses and no-poach contract agreements are frequently used against workers to depress wages and limit mobility.”

The letter discussed three types of no-poach agreements:

  • Naked no-poach or no-hire agreements that are per se illegal under antitrust law, according to the letter. This is when employers agree to not hire one another’s workers.
  • Horizontal no-poach agreements such as between franchisor and franchisees whereby franchisees agree to not hire employees of other franchisees.
  • Noncompetes between employers and employees. These restrict an employee’s ability to work for a competitor after leaving their current employer. A subset of employer and employee noncompetes are no-poach agreements whereby an employee agrees to not solicit employees from the old company to join the new company.

It noted that noncompete agreements between employers and employees are legal in most states, and about 20% of Americans are bound by noncompetes.

“By limiting worker mobility, especially that of low-wage workers, noncompetes restrict workers’ earnings opportunities and the economic security of their families,” according to the letter. “Noncompetes also harm competition by depriving businesses, who were not a party to the noncompete agreements, the opportunity to hire available, qualified workers.”

Some states, such as California and Montana, do not enforce such agreements, according to the letter. And several other states have recently passed legislation covering noncompetes.

The letter also noted noncompete agreements among human cloud platform firms, such as online staffing firms, can cause damage.

“Platforms grow through network effects, where additional users on a platform make the platform more valuable and attractive,” according to the letter. “In those situations, noncompete agreements imposed by a platform can be especially harmful because a no-compete agreement prevents laborers from switching to an upstart platform, which will have difficulty achieving the necessary scale to meaningfully enter the market.”

Signing the letter were attorneys general from California, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, Washington and the District of Columbia.

For more on noncompetes and poaching, see this Staffing Industry Review article.

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