Requiring Junior Employees To Sign Non-Competes Hinders Economy, Violates Labor Laws

US States and the Federal government are pushing to end the requirement that entry and junior level employees sign non-compete agreements, which prevent them from taking new jobs even in cases where they have been terminated.

The initiative is a reflection of the change in the economy and the nature of jobs, which are increasingly short-term or contractual - or both. This is especially important in the tech field, where turnover can be rapid. Non-competes are a vestige of a slower, more sclerotic era of work and may well hinder  growth by preventing the movement that encourages economic dynamism. JL

Aruna Viswanatha reports in the Wall Street Journal:

New York authorities fired a warning shot at companies that require junior-level employees to sign (noncompete) agreements. Companies that require junior-level employees to sign such agreements are violating New York labor laws. The White House issued a report saying noncompete agreements can impose “substantial costs on workers, consumers, and the economy more generally.
Law360 will stop requiring new hires to sign noncompete agreements under a settlement between the legal publication and New York authorities, who fired a warning shot at companies that include such provisions in their employment contracts.
The settlement follows an investigation by the New York attorney general’s office into whether companies that require junior-level employees to sign such agreements are violating New York labor laws.
The clauses, which bar departing employees from taking jobs with their company’s competitors for a designated period, have spread beyond the mostly senior or technical positions where they originated, attracting government scrutiny.
“Unless an individual has highly unique skills or access to trade secrets, noncompete clauses have no place in a worker’s employment contract,” said New York Attorney General Eric Schneiderman.
Law360, a LexisNexis Group unit that publishes online newsletters covering court cases and other legal news, said it “voluntarily collaborated with the New York attorney general’s office and reached a mutual agreement regarding the best possible outcome” for its employees.
Under the settlement, in which the New York-based publisher neither admitted nor denied any wrongdoing, Law360 will no longer require editorial employees to sign noncompete deals, and will notify current and former employees who left within the past year that the one-year waiting period the deals impose are no longer in effect.
Stephanie Russell-Kraft, a former reporter who lost a job with a new employer because of the noncompete agreement she signed with Law360, said she hadn’t yet found another full-time position, but is encouraged to hear the company has stopped requiring the commitments.
The New York attorney general’s office said it is continuing an investigation into sandwich chain Jimmy John’s, which has used such agreements to bar workers from taking jobs at other nearby sandwich shops.

Illinois Attorney General Lisa Madigan sued the chain earlier this month over the agreements, which she described as “highly restrictive” and “illegal and unenforceable under Illinois law.”
Jimmy John’s said it was “disappointed” in the Illinois move, and said it had told the state attorney general’s office that it would never enforce a noncompete agreement against any hourly employee who had signed one, and that it had removed them from its new-hire paperwork.
In May, the White House issued a report saying noncompete agreements can impose “substantial costs on workers, consumers, and the economy more generally.” In March, the Treasury Department said such agreements could have benefits—such as making companies more comfortable sharing trade secrets with employees or encouraging investment in their training—but were often used in ways that lacked “transparency and fairness.”
Around 15% of workers without a college degree are currently subject to noncompete agreements, and 14% of people earning less than $40,000 are subject to them, according to the White House report.
According to the Law360 settlement, the newswire had required all senior staff and all editorial staff, including junior-level news assistants, to sign agreements with a noncompete clause. The deals prohibited the employees from working for a “direct competitor” for one year, the settlement said.
The New York attorney general’s office said it interviewed several editorial employees who said they had little to no knowledge of any trade secrets or confidential information about the company’s technology. It also said that during the investigation, Law360 reported it “took steps” to enforce the agreements narrowly and in a “limited manner designed to protect its competitive interests.”
The founder of Law 360, Marius Meland, who sold the site to LexisNexis in 2012 for an undisclosed sum, said he implemented noncompete agreements at the company, but that his policy was to not enforce them. He left the company in March 2015, and is currently working on a new media venture which he said will publish “competitive intelligence for business professionals.”