Last week, the White House issued a “State Call to Action on Non-Compete Agreements” that calls for “state policymakers” to pursue certain restrictions on the use of non-compete agreements. It also released a report entitled “Non-Compete Reform: A Policymaker’s Guide to State Policies,” which includes an assessment of each state’s non-compete laws.
The “Non-Compete Reform: A Policymaker’s Guide to State Policies” report states that 18 percent of all workers have non-compete agreements, while 15 percent of all workers without a college degree have non-compete agreements, and 14 percent of workers earning $40,000 or less annually have non-competes. The report also states that non-competes have “become more common in low-wage, low-skilled professions like sandwich makers, temporary warehouse staff and hairstylists” even though those workers are unlikely to have access to trade secrets. The Call to Action claims that “[r]esearchers have found that states that strictly enforce non-compete agreements have lower wage growth and lower mobility than states that do not enforce them.”
The Call to Action then states that “the White House is calling on state policymakers to join in pursuing best-practice policy objectives” and lists three such objectives specifically:
1. Ban non-compete clauses for categories of workers, such as workers under a certain wage threshold; workers in certain occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or those who may suffer undue adverse impacts from non-competes, such as workers laid off or terminated without cause.
2. Improve transparency and fairness of non-compete agreements by, for example, disallowing non-competes unless they are proposed before a job offer or promotion has been accepted . . .; providing consideration over and above continued employment for workers who sign non-compete agreements; or encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work.
3. Incentivize employers to write enforceable contracts and encourage the elimination of unenforceable provisions, for example, promoting the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.
What does this mean for South Carolina? In the short term, not much. The White House’s announcement is not law and is not binding. But could this unprecedented announcement be followed by other measures designed to pressure state legislators and employers to implement these policy objectives? This is difficult to predict, particularly before the election.
It is worth noting that South Carolina non-compete law scores decently when compared with the White House’s stated policy objectives. While South Carolina currently does not ban non-competes for categories of workers (except attorneys), it does require consideration beyond mere continued employment and does not allow non-competes to be re-written or modified by the court so as to make the terms reasonable. It should be noted that the “Non-Compete Reform: A Policymaker’s Guide to State Policies” report lists South Carolina as one of five red-pencil states, which it defines as a state where “courts can nullify the entire non-compete agreement if one of the provisions does not comply with existing statute and/or case law standards.” This characterization is not entirely accurate. Rather, under certain circumstances, distinct and severable covenants that are reasonable and enforceable will be enforced even if they are contained in the same agreement with an unreasonable non-compete covenant that has been found to be unenforceable.
The “State Call to Action on Non-Compete Agreements” and the “Non-Compete Reform: A Policymaker’s Guide to State Policies,” can be found at the following links:
“Non-Compete Reform: A Policymaker’s Guide to State Policies,”
See also Fact Sheet: