Congress is getting into the non-compete business. Citing the use of non-compete agreements by companies such as Jimmy John's sandwich shops, Senate Democrats recently introduced a bill—called the Mobility and Opportunity for Vulnerable Employees (MOVE) Act—that would amend the Fair Labor Standards Act (FLSA) to prohibit the use of non-compete agreements for low-wage employees.
The bill defines "low-wage employees" as hourly employees making less than $15 per hour or the applicable state or local minimum wage, whichever is greater, or salaried employees making $31,200 per year or less. Using the definitions of "employer" and "employee" provided in the FLSA, the bill prohibits employers from entering into a non-compete agreement with any low-wage employee, and requires any employer who employs any low-wage employee to post notice of the MOVE Act in a conspicuous place on its premises. The bill also adds disclosure requirements for employers wishing to enter into non-compete agreements with employees who are not low-wage workers: the employer must disclose the requirement "prior to the employment of such employee and at the beginning of the process for hiring such employee."
The bill empowers the Secretary of Labor to investigate and enforce complaints in the same manner as with other claimed violations of the FLSA. It also provides for a civil fine of up to $5,000 for each employee who was the subject of a violation—which could take a big bite out of the earnings of companies using these agreements across the board.
This legislation comes after increased attention has been paid to employers entering into non-compete agreements with its low-wage workers. As we previously reported, Jimmy John's came under fire last year for its use of non-compete agreements among rank-and-file employees. The provision in question prohibits former employees for two years from working at any food service venue that derives 10% or more of its revenue from the sale of "submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches" within three miles of a Jimmy John's location. Outrage over the provision led to a request by members of the U.S. House of Representatives that the Department of Labor and the FTC investigate the practice, as well as a putative class action lawsuit seeking to challenge the provision as void and unenforceable. But the private lawsuit has not fared well: the plaintiffs had their request for a declaratory judgment and an injunction denied on the ground that the plaintiffs lacked standing because they could not establish a "reasonable apprehension" of a lawsuit, or that they had engaged or were preparing to engage in prohibited conduct.
Because the legality of non-compete agreements varies greatly state-by-state, leaving the issue to ad-hoc private litigation risks inconsistent treatment of these policies. And many workers may simply lack the resources to fight a lawsuit or challenge the enforceability of the provision, leaving them out of employment options. Perhaps this is why Congress is stepping in to continue the fight.
Will a former Jimmy John's employee soon be making sandwiches at a deli near you? We'll keep you toasted—er, posted!
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