Congress Should MOVE To Restrict Employee Non-Compete Clauses (Forbes Cross-Post)

10 07 2015
Newly hired employees routinely must accept non-compete restrictions as a condition of employment, but don’t interpret the ubiquity of non-compete clauses as a signal that they are a good idea. By restricting future competition for employees’ labor, employee non-competition clauses hurt marketplace efficiency just like you’d expect. Indeed, one of the key ingredients in Silicon Valley’s “secret sauce” is California’s long-standing categorical rejection of employee non-competes, compared to other states’ tolerance for such restrictions. Undoubtedly, society would benefit if we eliminated these distortions on marketplace competition for labor.

Fortunately, Congress is taking notice. In an effort to crack down on the overuse of employee non-compete restrictions, several Senators are sponsoring S. 1504, the “Mobility and Opportunity for Vulnerable Employees Act” (or MOVE Act).

The Act has two main provisions. First, the Act makes it illegal to impose non-compete restrictions on “low-wage” employees, generally defined as employees earning less than $15/hour (or minimum wage, if higher) or an annual salary of $31,200. These dollar thresholds escalate over time. Second, for all other employees working in interstate commerce, the law requires employers to disclose that they will require non-compete restrictions early in the job search process. The Act says such disclosure should be “at the beginning of the process for hiring such employee.” Violations are enforced by the Department of Labor.


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