Democrats Propose Bans on Noncompete, No-Poach Agreements

Roy Maurer By Roy Maurer May 10, 2018
Democrats Propose Bans on Noncompete, No-Poach Agreements

​Congressional Democrats unveiled legislation April 26 aimed at stopping employers from entering into no-poach agreements and requiring workers to sign noncompete clauses in employment contracts.

The bill's sponsors say these are anti-competitive practices that hurt workers and limit their mobility.

"Such domination and bullying is all too common, whether through absurd noncompete contracts that restrict where we can work or [through] secret collusion by employers to suppress our wages," said Barry Lynn, the executive director of the Open Markets Institute, a Washington, D.C.-based think tank focused on antitrust issues. "Every person who works—from those who toil in restaurants, to nurses, to top scientists and engineers—must be free from coercion by bosses."

In addition to addressing noncompete language and compacts between employers that agree not to hire from one another, the package of legislation would also "prohibit the consideration of spurious economic efficiencies—like corporate layoffs—to justify anticompetitive mergers," according to a press release from Rep. Jerrold Nadler, D-N.Y., a co-sponsor of the legislation.

"Employers have immense power to restrict the wages and mobility of workers, and to justify anti-competitive mergers under the guise of corporate restructuring—which we all know means layoffs and unemployment," Nadler said.

The bills likely won't go far without Republican support, but the issues contained in them could be elevated during the 2018 midterm elections.

The legislative push is consistent with actions taken in recent years to ban what Democratic lawmakers view as agreements that depress wages and unfairly limit workers' opportunities to advance their careers, said Liam O'Connell, a partner and chair of the labor, employment and benefits practice group at Nutter, a Boston-based law firm. "These lawmakers view these problems as more acute as economic power and opportunity are more concentrated, as corporate consolidations continue," he said.

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Banning Noncompetes

The legislation package includes a proposal to prohibit noncompete clauses that prevent employees from moving to a company's competitor. The Workforce Mobility Act would ban noncompete agreements in the workplace by establishing that these contracts violate antitrust laws and by providing employees with a private right of action if they are illegally forced to sign a noncompete agreement.

"Noncompete agreements hold American workers hostage," said Rep. Linda Sanchez, D-Calif., a co-sponsor of the legislation.

A group of U.S. senators introduced companion legislation the same day that would prohibit the use of noncompete agreements, require employers to notify their workers that these agreements are illegal, and empower the U.S. Department of Labor to enforce the ban with fines on employers.

According to a press release from Sen. Chris Murphy, D-Conn., a lead sponsor of the bill, nearly 40 percent of U.S. workers have been constrained by noncompete agreements at some point in their careers, even low-wage workers.  

Employers may want to use noncompetes and other restrictive agreements to protect their business interests, but they must be careful not to overreach, SHRM Online reported. Some state legislatures have significantly limited—or are considering legislation to limit—the permissible terms of such agreements.

"The present push at the federal level coincides with limitations that have been placed on restrictive covenants at the state level," O'Connell said. "California, North Dakota and Oklahoma have enacted noncompete bans, and other states, including Pennsylvania, Vermont, New Hampshire and Massachusetts recently have considered noncompete bans of one form or another."

Eliminating No-Poach Arrangements

The End Employer Collusion Act—another piece of the legislative package—would ban agreements employers make with each other promising not to poach each other's workers. The no-poach bill would codify existing federal guidelines, which have increasingly found that no-poach agreements are unreasonable restraints of trade under the Sherman Antitrust Act and therefore unlawful.

The Sherman Act does not specifically forbid no-poach agreements but broadly prohibits agreements that unreasonably restrain trade. Although courts and federal prosecutors have increasingly found that no-poach agreements are unreasonable restraints of trade under the Sherman Act, some courts may still permit defendants to argue that no-poach agreements have pro-competitive benefits that render them lawful. The End Employer Collusion Act would make no-poach agreements inarguably unlawful under federal law.

"The proposed legislation would add significant protections for American workers by expressly prohibiting the types of anti-competitive no-poach agreements that the antitrust laws already seek to proscribe," said Hollis Salzman, partner and co-chair of the antitrust and trade regulation group in the New York City office of Robins Kaplan. "The legislation would bolster the legal remedies available to affected workers and codify what the Department of Justice (DOJ) and Federal Trade Commission have increasingly made clear—that no-poach agreements illegally suppress worker compensation and cannot be justified by employers' desire to cut costs." 

Companion legislation has been introduced by Sens. Cory Booker, D-N.J. and Elizabeth Warren, D-Mass. "More than half of the largest franchisors in this country use some form of anti-competitive no-poach agreements that prevent their workers from translating their value into higher wages," Booker said. "More concerning is that most workers don't even know such agreements exist," he added.

No-poach agreements are also a target of the Trump administration. The DOJ warned employers earlier this year that complaints against companies engaging in the practice are in the works, and it issued its first criminal charges and settlement last month.

On April 3, the department announced it had reached a settlement with rail equipment suppliers Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp., charging them with unlawfully entering into no-poach agreements to restrain competition in the labor market.

The DOJ originally uncovered these agreements while investigating a proposed merger between Westinghouse and a third firm, Faiveley Transport S.A.

According to an April 30 proposed class-action lawsuit brought against the three companies (Knorr, Westinghouse and Faiveley), beginning as early as 2009, the companies agreed to not recruit or hire one another's workers without prior approval, which violated the Sherman Act. "These agreements substantially limited rail industry workers' access to better opportunities and deprived them of information they could have used in negotiating better terms of employment, including higher compensation," said Salzman, who is representing the proposed class of plaintiffs.

"The rail equipment suppliers' alleged no-poach agreements illustrate just how pervasive and harmful such agreements can be, particularly in specialized industries with concentrated markets," she said. "Through a handful of agreements, a few industry leaders effectively extinguished the mobility and negotiating power of thousands of employees, reducing their wages and benefits for nearly a decade."

Salzman believes this is the beginning of increased prosecution of no-poach agreements, more of which will be uncovered across industries.

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