Speaker 1: It's the moment that many fed up workers wait for,
Speaker 1: even dream of quitting their job. That's why it's part
Speaker 1: of so many movies like the appropriately entitled two Weeks
Speaker 1: Notice with Sandra Bullock. I'm representing the weight organizations that
Speaker 1: includes you not anymore, George, Sorry, you got Island Towers.
Speaker 1: I got Coney Island. Why don't we just call it quits? Okay,
Speaker 1: I can't take it anymore? What are you serious? Yes,
Speaker 1: please consider this my two weeks notice. But this American
Speaker 1: dream of leaving a bad job or just moving on
Speaker 1: to a job in the same industry with better pay
Speaker 1: or a better position is being crushed in some states
Speaker 1: for workers at all levels. Idaho is known for its potatoes,
Speaker 1: but it may become known as one of the hardest
Speaker 1: places in the country to achieve that American dream. It
Speaker 1: has the toughest law in the country stopping employees from
Speaker 1: leaving their company to work for a competitor, and it
Speaker 1: all revolves around what's known as a non compete clause.
Speaker 1: Here to discuss the saga of the non compete laws
Speaker 1: across the country are Michael Selm, a professor at George
Speaker 1: Washington University Law School, and Matt Marks, a professor at
Speaker 1: the Boston University Questroom School of Business. Michael, let's start
Speaker 1: by talking about the non compete clause, which was once
Speaker 1: only for senior executives, and now it's filtered down to
Speaker 1: contracts for blue collar workers. Tell us what it is
Speaker 1: and what it does. Yes, that's right. Uh. There has
Speaker 1: been a proliferation of non compete agreements and all kinds
Speaker 1: of jobs. Perhaps most famously a few years ago became
Speaker 1: notorious that Jimmy John's required a two year non compete
Speaker 1: clause for their sandwich makers. UM and that was has
Speaker 1: subsequently been challenged and UH and that brought a lot
Speaker 1: of attention to the growth of non competes. Non compete
Speaker 1: clauses typically require UH an employee to refrain from working
Speaker 1: for a competitor, although that can be defined in any
Speaker 1: number of ways, UM, for some period of time after
Speaker 1: they stopped their employment. UH. Usually the agreements are anywhere
Speaker 1: from a year to two years. Sometimes they're longer, and
Speaker 1: occasionally they are shorter. UH and these agreements can pose
Speaker 1: significant restrictions on employees mobility UH and they have also
Speaker 1: led to considerable litigation over the last few years. Matt
Speaker 1: why did Idaho past this strict law and how strict
Speaker 1: is it? Well? I think that existing corporations, whether they
Speaker 1: be large or small, are interested in retaining their employees. Um.
Speaker 1: They like to avoid the situation that you saw in
Speaker 1: the movie where employee suddenly decides to leave, because then
Speaker 1: they have to rehire the person and they have to
Speaker 1: have to replace the person and so UM. In many states,
Speaker 1: existing companies, especially large companies, lobby hard to keep existing
Speaker 1: laws on the books, such as happened in Massachusetts, and
Speaker 1: also to strengthen existing law. And I think that's what
Speaker 1: you saw in Idaho, and you've seen that also in
Speaker 1: other states. Uh. Through the years, there have been several changes, um,
Speaker 1: where companies have said, no, we want stronger enforcement. We
Speaker 1: want to be able to keep people from not just
Speaker 1: from leaving, but especially want to keep them from going
Speaker 1: and working in the same industry. Uh. Michael, With the
Speaker 1: Idaho law, you tell me about what makes it stricter
Speaker 1: than other laws. How it puts the burden on the worker. Yes, Um.
Speaker 1: In when that the clauses are challenged, usually by an employee.
Speaker 1: In most jurisdictions, the employer has the burden to establish
Speaker 1: that the agreement is reasonable, sort of broadly defined, and
Speaker 1: that's reasonable in the length of time, its scope, in
Speaker 1: terms of where would apply, and also courts ensure that
Speaker 1: it was designed to serve a legitimate business purpose. It's
Speaker 1: tradition not a legitimate purpose to have a restrictive covenants
Speaker 1: simply to keep an employee. The best way of keeping
Speaker 1: good employees, obviously is to pay them work or to
Speaker 1: treat them. What the Iowa law doesn't I will leave.
Speaker 1: Alabama has recently done the same or similar is it
Speaker 1: reverses the presumption. So in Idaho UH certain employees they're
Speaker 1: defined as key employees, so wouldn't apply to all the employees,
Speaker 1: would be required to prove that they're leading would not
Speaker 1: hurt the employer. Um. That's an incredibly high burden for
Speaker 1: an employee to meet, and quite different from most every
Speaker 1: other jurisdiction in the country. Matt. Do all workers know
Speaker 1: that they're signing this clause? Is it explained? Do they
Speaker 1: have time to look at it? That's actually one of
Speaker 1: the little known facets of these contracts. So I did
Speaker 1: a survey a few years ago where i'd UH survey
Speaker 1: thousands of workers in technology fields, engineering fields, and one
Speaker 1: of the questions I asked them was when were you
Speaker 1: asked to sign this noncompete? What did you know you'd
Speaker 1: have to sign? And barely of them knew about it
Speaker 1: at the time they were signing their job offer. For
Speaker 1: the vast majority, it was after that, often their first
Speaker 1: day of work, or even after they had started the job.
Speaker 1: As one person said, I showed up the first day
Speaker 1: and they said sign all this stuff direct deposit healthcare
Speaker 1: noncompete and they would look at it and say, what's this.
Speaker 1: The company would say, oh, well, that's just just sign
Speaker 1: it and uh. And they really didn't have a chance,
Speaker 1: and it was presented as a non negotiable uh, part
Speaker 1: of working at the company, And so it's it's it's
Speaker 1: not really a negotiation, it's more of an ambush in
Speaker 1: most cases. I'm talking about noncompete clauses being on the
Speaker 1: rise and the effect on the workforce. With Michael Selmy,
Speaker 1: a professor at George Washington University Law School, and that Marks,
Speaker 1: a professor at Boston University, questions of business Matt, I
Speaker 1: can understand how these non competes are good for a company,
Speaker 1: but what about the worker? What's the impetus then for
Speaker 1: giving them raises, and what about the expertise the employee
Speaker 1: has gained, is that now belong to the company. In fact,
Speaker 1: it does. In fact the way to think about non
Speaker 1: competes as they're kind of like a time machine because
Speaker 1: when when you sign a noncompete, you promised not to
Speaker 1: work in the same industry or for a competitor after leaving,
Speaker 1: and it doesn't. And it's not just protecting anything you
Speaker 1: learned at that company, it's protecting all the relevant skills
Speaker 1: that you had, whether from that company, from previous jobs,
Speaker 1: even things you learned in college. It really shuts you
Speaker 1: off from using that expertise. And it affects especially people
Speaker 1: who have very specialized skills, because it's very hard for
Speaker 1: them to find another job unless it's at arrival. And
Speaker 1: to the first part of your question, it can affect
Speaker 1: earnings as well, because when there's less of a market,
Speaker 1: you're not free to explore other interest in your in
Speaker 1: your in your skills, and so you're basically tied to
Speaker 1: the company. And when there's less of a risk of
Speaker 1: you leaving, there's the company doesn't need to pay as much,
Speaker 1: is not worried about you uh leaving for for somewhere
Speaker 1: else and Michael, are lawsuits on these non competes on
Speaker 1: the rise then? Or are they too expensive laws? Why?
Speaker 1: Get The answer to those questions are yes to both. Actually,
Speaker 1: lawsuits are on the rise. There's been a substantial increase
Speaker 1: in litigation over noncompete clauses, and my impression in terms
Speaker 1: of reading the cases is that there is a trend
Speaker 1: towards striking them down in the courts. Courts have become
Speaker 1: quite skeptical of the breadth of a lot of the
Speaker 1: non compete clauses. But your second question whether they're too
Speaker 1: expensive is also true, so that it's actually only a
Speaker 1: limited group of employees who are able to challenge the
Speaker 1: agreement's usually high level executives. UH and oftentimes the litigation
Speaker 1: is funded by the potential new employer as well, so
Speaker 1: most employees are unable to challenge them. And I always
Speaker 1: recall when I teach employment law at the law school,
Speaker 1: there's always somebody who comes up to me and says
Speaker 1: that they went to law school because they had a
Speaker 1: restrictive covenant that prevented them from moving to a different job. Um,
Speaker 1: And I never know whether that turns out to be
Speaker 1: a good thing for them or not, but most employees
Speaker 1: are unable to challenge them, and they don't realize that
Speaker 1: they could challenge them now, Matt, Matt, there are some states.
Speaker 1: California is one where it just you cannot have any noncompetes.
Speaker 1: Are there other other states like California? UM, North Dakota
Speaker 1: is very much like California, And there are many states
Speaker 1: with restrictions on non competes. Many of those have evolved.
Speaker 1: For example, UM in two thousand eight Oregon said, Oregon
Speaker 1: tackled this notice question, but they said, if you're going
Speaker 1: to have a really sign a noncompete, you have to
Speaker 1: tell them when you offer them the job. There's son
Speaker 1: of this ambush after the fact in New Hampshire did
Speaker 1: the same thing in So there are restrictions in different states,
Speaker 1: but I think California is the sharpest example of the
Speaker 1: state that just says you can't use these contracts in
Speaker 1: challenging the law itself, Michael, would there be a challenge
Speaker 1: to the law in in in a federal court and
Speaker 1: then an appellate court to these very strict noncompetes that
Speaker 1: prevent you from you know, working for years or longer
Speaker 1: in in your field. Yes, So, the challenges UM. They
Speaker 1: typically rise in state courts under the varied state laws
Speaker 1: UH and UH they seek to strike down the agreements
Speaker 1: as applied to a particular individually to typically don't UM
Speaker 1: apply to all the individuals in a company when they
Speaker 1: are challenged UM. And one of the things that that
Speaker 1: works on the employer's favors in the litigation is that
Speaker 1: the litigation can take UH some time. Oftentimes the litigation
Speaker 1: might even take a year at the same time that
Speaker 1: the restrict of covenant might be in place. And so
Speaker 1: even if the agreement has struck down the simple time,
Speaker 1: the length of time that the litigation takes conserve the
Speaker 1: same purpose for an employer. Finally, Matt, what is there
Speaker 1: to do if you're if you're an employee and someone
Speaker 1: puts this in front of you, is there is there
Speaker 1: any negotiating around this? If they want you enough? Well,
Speaker 1: I think the thing to do is to ask before
Speaker 1: you sign your offer letter, because once you sign the
Speaker 1: job offer, you have lost your your leverage. You to
Speaker 1: find out in advance is this company going to ask
Speaker 1: me to commit not to work for arrival afterwards? And
Speaker 1: because that's when you can negotiate, you can say well,
Speaker 1: this other company isn't asking for a noncompete, or I
Speaker 1: have another job offer in California and I'll just go there.
Speaker 1: If you insist on me signing a non compete, you've
Speaker 1: got to negotiate before you sign. Thank you both for
Speaker 1: being on Bloomberg Law and it's it's such an incredibly
Speaker 1: interesting topic. That's Matt Marks and Michael sell Me. Thank
Speaker 1: you both,