WEBVTT - Idaho Scales Up Non-Compete Rules as Others Back Away (Audio) 0:00:00.080 --> 0:00:02.840 It's the moment that many fed up workers wait for, 0:00:03.080 --> 0:00:06.280 even dream of quitting their job. That's why it's part 0:00:06.280 --> 0:00:09.680 of so many movies like the appropriately entitled two Weeks 0:00:09.720 --> 0:00:14.440 Notice with Sandra Bullock. I'm representing the weight organizations that 0:00:14.480 --> 0:00:20.320 includes you not anymore, George, Sorry, you got Island Towers. 0:00:20.480 --> 0:00:22.640 I got Coney Island. Why don't we just call it quits? Okay, 0:00:22.680 --> 0:00:25.640 I can't take it anymore? What are you serious? Yes, 0:00:26.200 --> 0:00:29.280 please consider this my two weeks notice. But this American 0:00:29.400 --> 0:00:31.920 dream of leaving a bad job or just moving on 0:00:31.960 --> 0:00:34.480 to a job in the same industry with better pay 0:00:34.640 --> 0:00:37.879 or a better position is being crushed in some states 0:00:37.960 --> 0:00:41.520 for workers at all levels. Idaho is known for its potatoes, 0:00:41.520 --> 0:00:43.360 but it may become known as one of the hardest 0:00:43.400 --> 0:00:46.640 places in the country to achieve that American dream. It 0:00:46.720 --> 0:00:49.760 has the toughest law in the country stopping employees from 0:00:49.840 --> 0:00:52.720 leaving their company to work for a competitor, and it 0:00:52.840 --> 0:00:56.760 all revolves around what's known as a non compete clause. 0:00:57.200 --> 0:01:00.320 Here to discuss the saga of the non compete laws 0:01:00.360 --> 0:01:03.640 across the country are Michael Selm, a professor at George 0:01:03.640 --> 0:01:07.960 Washington University Law School, and Matt Marks, a professor at 0:01:07.959 --> 0:01:13.080 the Boston University Questroom School of Business. Michael, let's start 0:01:13.120 --> 0:01:16.520 by talking about the non compete clause, which was once 0:01:16.720 --> 0:01:20.160 only for senior executives, and now it's filtered down to 0:01:20.920 --> 0:01:24.240 contracts for blue collar workers. Tell us what it is 0:01:24.280 --> 0:01:27.920 and what it does. Yes, that's right. Uh. There has 0:01:27.959 --> 0:01:31.480 been a proliferation of non compete agreements and all kinds 0:01:31.480 --> 0:01:35.560 of jobs. Perhaps most famously a few years ago became 0:01:35.560 --> 0:01:39.040 notorious that Jimmy John's required a two year non compete 0:01:39.040 --> 0:01:42.319 clause for their sandwich makers. UM and that was has 0:01:42.319 --> 0:01:46.000 subsequently been challenged and UH and that brought a lot 0:01:46.000 --> 0:01:50.040 of attention to the growth of non competes. Non compete 0:01:50.040 --> 0:01:55.760 clauses typically require UH an employee to refrain from working 0:01:55.840 --> 0:01:59.080 for a competitor, although that can be defined in any 0:01:59.160 --> 0:02:02.360 number of ways, UM, for some period of time after 0:02:02.480 --> 0:02:06.680 they stopped their employment. UH. Usually the agreements are anywhere 0:02:06.680 --> 0:02:08.840 from a year to two years. Sometimes they're longer, and 0:02:08.880 --> 0:02:13.519 occasionally they are shorter. UH and these agreements can pose 0:02:13.600 --> 0:02:17.280 significant restrictions on employees mobility UH and they have also 0:02:17.360 --> 0:02:21.880 led to considerable litigation over the last few years. Matt 0:02:22.160 --> 0:02:26.240 why did Idaho past this strict law and how strict 0:02:26.320 --> 0:02:32.000 is it? Well? I think that existing corporations, whether they 0:02:32.040 --> 0:02:36.040 be large or small, are interested in retaining their employees. Um. 0:02:36.080 --> 0:02:38.080 They like to avoid the situation that you saw in 0:02:38.120 --> 0:02:42.000 the movie where employee suddenly decides to leave, because then 0:02:42.000 --> 0:02:43.960 they have to rehire the person and they have to 0:02:44.960 --> 0:02:48.919 have to replace the person and so UM. In many states, 0:02:49.480 --> 0:02:54.840 existing companies, especially large companies, lobby hard to keep existing 0:02:55.320 --> 0:02:58.680 laws on the books, such as happened in Massachusetts, and 0:02:58.720 --> 0:03:01.000 also to strengthen existing law. And I think that's what 0:03:01.080 --> 0:03:03.720 you saw in Idaho, and you've seen that also in 0:03:03.800 --> 0:03:08.560 other states. Uh. Through the years, there have been several changes, um, 0:03:08.680 --> 0:03:11.760 where companies have said, no, we want stronger enforcement. We 0:03:11.800 --> 0:03:15.000 want to be able to keep people from not just 0:03:15.080 --> 0:03:17.360 from leaving, but especially want to keep them from going 0:03:17.440 --> 0:03:23.080 and working in the same industry. Uh. Michael, With the 0:03:23.080 --> 0:03:27.720 Idaho law, you tell me about what makes it stricter 0:03:27.800 --> 0:03:33.000 than other laws. How it puts the burden on the worker. Yes, Um. 0:03:34.040 --> 0:03:40.400 In when that the clauses are challenged, usually by an employee. 0:03:41.240 --> 0:03:44.960 In most jurisdictions, the employer has the burden to establish 0:03:45.080 --> 0:03:47.800 that the agreement is reasonable, sort of broadly defined, and 0:03:47.840 --> 0:03:51.600 that's reasonable in the length of time, its scope, in 0:03:51.720 --> 0:03:56.200 terms of where would apply, and also courts ensure that 0:03:56.280 --> 0:03:58.920 it was designed to serve a legitimate business purpose. It's 0:03:59.640 --> 0:04:03.680 tradition not a legitimate purpose to have a restrictive covenants 0:04:03.680 --> 0:04:06.960 simply to keep an employee. The best way of keeping 0:04:07.000 --> 0:04:09.160 good employees, obviously is to pay them work or to 0:04:09.200 --> 0:04:13.760 treat them. What the Iowa law doesn't I will leave. 0:04:14.160 --> 0:04:17.440 Alabama has recently done the same or similar is it 0:04:17.560 --> 0:04:22.800 reverses the presumption. So in Idaho UH certain employees they're 0:04:22.800 --> 0:04:25.680 defined as key employees, so wouldn't apply to all the employees, 0:04:26.080 --> 0:04:29.320 would be required to prove that they're leading would not 0:04:29.440 --> 0:04:32.640 hurt the employer. Um. That's an incredibly high burden for 0:04:32.680 --> 0:04:36.200 an employee to meet, and quite different from most every 0:04:36.240 --> 0:04:40.880 other jurisdiction in the country. Matt. Do all workers know 0:04:41.040 --> 0:04:44.120 that they're signing this clause? Is it explained? Do they 0:04:44.120 --> 0:04:47.680 have time to look at it? That's actually one of 0:04:47.720 --> 0:04:51.680 the little known facets of these contracts. So I did 0:04:51.680 --> 0:04:55.760 a survey a few years ago where i'd UH survey 0:04:55.839 --> 0:05:00.200 thousands of workers in technology fields, engineering fields, and one 0:05:00.240 --> 0:05:02.440 of the questions I asked them was when were you 0:05:02.480 --> 0:05:04.920 asked to sign this noncompete? What did you know you'd 0:05:04.960 --> 0:05:08.719 have to sign? And barely of them knew about it 0:05:08.760 --> 0:05:11.799 at the time they were signing their job offer. For 0:05:11.920 --> 0:05:16.279 the vast majority, it was after that, often their first 0:05:16.360 --> 0:05:18.600 day of work, or even after they had started the job. 0:05:18.960 --> 0:05:21.280 As one person said, I showed up the first day 0:05:21.279 --> 0:05:26.280 and they said sign all this stuff direct deposit healthcare 0:05:26.480 --> 0:05:29.560 noncompete and they would look at it and say, what's this. 0:05:30.279 --> 0:05:32.520 The company would say, oh, well, that's just just sign 0:05:32.520 --> 0:05:35.880 it and uh. And they really didn't have a chance, 0:05:35.920 --> 0:05:39.839 and it was presented as a non negotiable uh, part 0:05:39.880 --> 0:05:42.719 of working at the company, And so it's it's it's 0:05:42.760 --> 0:05:45.240 not really a negotiation, it's more of an ambush in 0:05:45.320 --> 0:05:49.640 most cases. I'm talking about noncompete clauses being on the 0:05:49.800 --> 0:05:52.880 rise and the effect on the workforce. With Michael Selmy, 0:05:53.080 --> 0:05:57.240 a professor at George Washington University Law School, and that Marks, 0:05:57.279 --> 0:06:02.440 a professor at Boston University, questions of business Matt, I 0:06:02.480 --> 0:06:06.200 can understand how these non competes are good for a company, 0:06:06.240 --> 0:06:10.239 but what about the worker? What's the impetus then for 0:06:10.360 --> 0:06:14.960 giving them raises, and what about the expertise the employee 0:06:14.960 --> 0:06:19.159 has gained, is that now belong to the company. In fact, 0:06:19.200 --> 0:06:21.360 it does. In fact the way to think about non 0:06:21.400 --> 0:06:24.320 competes as they're kind of like a time machine because 0:06:25.360 --> 0:06:28.320 when when you sign a noncompete, you promised not to 0:06:28.400 --> 0:06:31.400 work in the same industry or for a competitor after leaving, 0:06:32.000 --> 0:06:35.080 and it doesn't. And it's not just protecting anything you 0:06:35.160 --> 0:06:38.640 learned at that company, it's protecting all the relevant skills 0:06:38.640 --> 0:06:42.080 that you had, whether from that company, from previous jobs, 0:06:42.120 --> 0:06:45.159 even things you learned in college. It really shuts you 0:06:45.240 --> 0:06:49.400 off from using that expertise. And it affects especially people 0:06:49.440 --> 0:06:52.359 who have very specialized skills, because it's very hard for 0:06:52.400 --> 0:06:56.719 them to find another job unless it's at arrival. And 0:06:56.960 --> 0:06:59.120 to the first part of your question, it can affect 0:06:59.160 --> 0:07:01.760 earnings as well, because when there's less of a market, 0:07:02.320 --> 0:07:05.280 you're not free to explore other interest in your in 0:07:05.320 --> 0:07:08.919 your in your skills, and so you're basically tied to 0:07:08.960 --> 0:07:11.120 the company. And when there's less of a risk of 0:07:11.160 --> 0:07:14.640 you leaving, there's the company doesn't need to pay as much, 0:07:14.800 --> 0:07:17.720 is not worried about you uh leaving for for somewhere 0:07:17.720 --> 0:07:22.360 else and Michael, are lawsuits on these non competes on 0:07:22.440 --> 0:07:27.000 the rise then? Or are they too expensive laws? Why? 0:07:27.080 --> 0:07:30.480 Get The answer to those questions are yes to both. Actually, 0:07:31.000 --> 0:07:34.320 lawsuits are on the rise. There's been a substantial increase 0:07:34.320 --> 0:07:38.840 in litigation over noncompete clauses, and my impression in terms 0:07:38.840 --> 0:07:41.160 of reading the cases is that there is a trend 0:07:41.600 --> 0:07:44.840 towards striking them down in the courts. Courts have become 0:07:45.200 --> 0:07:47.840 quite skeptical of the breadth of a lot of the 0:07:48.040 --> 0:07:51.400 non compete clauses. But your second question whether they're too 0:07:51.400 --> 0:07:54.560 expensive is also true, so that it's actually only a 0:07:54.640 --> 0:07:58.640 limited group of employees who are able to challenge the 0:07:58.680 --> 0:08:03.800 agreement's usually high level executives. UH and oftentimes the litigation 0:08:03.880 --> 0:08:07.400 is funded by the potential new employer as well, so 0:08:07.560 --> 0:08:11.360 most employees are unable to challenge them. And I always 0:08:11.360 --> 0:08:13.840 recall when I teach employment law at the law school, 0:08:13.880 --> 0:08:15.680 there's always somebody who comes up to me and says 0:08:15.720 --> 0:08:17.800 that they went to law school because they had a 0:08:17.840 --> 0:08:21.800 restrictive covenant that prevented them from moving to a different job. Um, 0:08:22.000 --> 0:08:23.840 And I never know whether that turns out to be 0:08:23.880 --> 0:08:26.480 a good thing for them or not, but most employees 0:08:27.080 --> 0:08:30.720 are unable to challenge them, and they don't realize that 0:08:30.720 --> 0:08:35.559 they could challenge them now, Matt, Matt, there are some states. 0:08:35.840 --> 0:08:40.479 California is one where it just you cannot have any noncompetes. 0:08:40.600 --> 0:08:45.480 Are there other other states like California? UM, North Dakota 0:08:45.520 --> 0:08:48.600 is very much like California, And there are many states 0:08:48.600 --> 0:08:52.320 with restrictions on non competes. Many of those have evolved. 0:08:52.400 --> 0:08:56.200 For example, UM in two thousand eight Oregon said, Oregon 0:08:56.280 --> 0:08:59.400 tackled this notice question, but they said, if you're going 0:08:59.440 --> 0:09:02.280 to have a really sign a noncompete, you have to 0:09:02.320 --> 0:09:04.880 tell them when you offer them the job. There's son 0:09:04.920 --> 0:09:08.120 of this ambush after the fact in New Hampshire did 0:09:08.160 --> 0:09:12.680 the same thing in So there are restrictions in different states, 0:09:12.920 --> 0:09:16.640 but I think California is the sharpest example of the 0:09:16.679 --> 0:09:20.920 state that just says you can't use these contracts in 0:09:21.280 --> 0:09:25.640 challenging the law itself, Michael, would there be a challenge 0:09:25.720 --> 0:09:29.560 to the law in in in a federal court and 0:09:29.600 --> 0:09:33.480 then an appellate court to these very strict noncompetes that 0:09:33.600 --> 0:09:37.480 prevent you from you know, working for years or longer 0:09:37.960 --> 0:09:42.040 in in your field. Yes, So, the challenges UM. They 0:09:42.080 --> 0:09:46.040 typically rise in state courts under the varied state laws 0:09:46.679 --> 0:09:51.040 UH and UH they seek to strike down the agreements 0:09:51.040 --> 0:09:54.679 as applied to a particular individually to typically don't UM 0:09:55.200 --> 0:09:58.120 apply to all the individuals in a company when they 0:09:58.120 --> 0:10:01.199 are challenged UM. And one of the things that that 0:10:01.520 --> 0:10:04.040 works on the employer's favors in the litigation is that 0:10:04.080 --> 0:10:07.920 the litigation can take UH some time. Oftentimes the litigation 0:10:07.960 --> 0:10:10.480 might even take a year at the same time that 0:10:10.559 --> 0:10:12.520 the restrict of covenant might be in place. And so 0:10:12.600 --> 0:10:15.800 even if the agreement has struck down the simple time, 0:10:16.120 --> 0:10:18.720 the length of time that the litigation takes conserve the 0:10:18.760 --> 0:10:23.400 same purpose for an employer. Finally, Matt, what is there 0:10:23.480 --> 0:10:26.480 to do if you're if you're an employee and someone 0:10:26.800 --> 0:10:29.160 puts this in front of you, is there is there 0:10:29.200 --> 0:10:33.120 any negotiating around this? If they want you enough? Well, 0:10:33.160 --> 0:10:36.920 I think the thing to do is to ask before 0:10:37.040 --> 0:10:39.880 you sign your offer letter, because once you sign the 0:10:40.000 --> 0:10:43.320 job offer, you have lost your your leverage. You to 0:10:43.320 --> 0:10:45.839 find out in advance is this company going to ask 0:10:45.880 --> 0:10:49.800 me to commit not to work for arrival afterwards? And 0:10:49.920 --> 0:10:51.960 because that's when you can negotiate, you can say well, 0:10:52.000 --> 0:10:55.960 this other company isn't asking for a noncompete, or I 0:10:56.040 --> 0:10:59.439 have another job offer in California and I'll just go there. 0:11:00.120 --> 0:11:02.680 If you insist on me signing a non compete, you've 0:11:02.720 --> 0:11:06.080 got to negotiate before you sign. Thank you both for 0:11:06.160 --> 0:11:09.160 being on Bloomberg Law and it's it's such an incredibly 0:11:09.200 --> 0:11:13.199 interesting topic. That's Matt Marks and Michael sell Me. Thank 0:11:13.240 --> 0:11:13.640 you both,