Employers Face Hurdles in Enforcing Non-Competes Against Lower-Wage Workers

Employers requiring lower-wage employees to sign and abide by non-competition and non-solicitation of clients provisions may want to find another mechanism to protect business goodwill and confidential information. Courts across the country are refusing to enforce non-competes against lower-wage employees and now states are taking action to preclude these agreements.

In 2015, Sen. Elizabeth Warren (D-MA) and Chris Murphy (D-CT) introduced the Mobility and Opportunity for Vulnerable Employees Act or MOVE Act. If signed into law, the MOVE Act would prohibit employers from requiring low-wage employees to enter into covenants not to compete and require employers to notify potential employees at the beginning of the hiring process of any requirements to enter into a non-compete agreement. Even before the MOVE Act was introduced, however, a number of courts around the country had been refusing to enforce non-competes against low-level employees:

• Nat’l Employment Serv. Corp. v. Olsten Staffing Serv., Inc.: The New Hampshire Supreme Court refused to enforce a noncompetition agreement for light industrial laborers who were not in a position to appropriate the company’s goodwill and were without access to sensitive information. 761 A.2d 401 (N.H. 2000).
• Ecology Servs., Inc. v. Clym Envtl. Servs., LLC: The Maryland Court of Appeals upheld a lower court’s finding that appellees were “clearly low-level employees” who delivered packages, and were not utilizing skills against whom covenants not to compete could be enforced. 952 A.2d 999, 1004-05 (Md. App. 2008).
• Narragansett Coated Paper Corp. v. Lapierre: The Rhode Island Superior Court refused to enforce a non-compete against a low-level employee who learned how the company manufactured coated paper used to cover book and wrap boxes, reasoning that “[s]ingling out employees at relatively low levels of employment…for post-employment non-competition agreements suggests that the purpose of those agreements is not so much to protect an employer’s trade secrets and confidential business information but rather to exercise economic control over certain classes of employees.” Cause No. C.A. PC 97-2842, 1998 WL 388400, at *2-3 (R.I. Super. June 30, 2006).
• Elite Cleaning Co., Inc. v. Capel: The Delaware Chancellery Court declined to enforce a non-competition agreement against an at-will employee and former employer’s janitor, who did not have access to any sensitive information, received no specialized training, and received compensation (without benefits) only slightly above minimum wage. Civ. A. 690-N, 2006 WL 1565161, at *9 (Del. Ch. Jun. 2, 2006).
• BHB Inv. Holdings, LLC v. Ogg: The Michigan Court of Appeals found that the non-competition agreement in question was overly broad and unreasonable given the defendant’s position as a swim instructor. Cause No. 330045, 2017 WL 723789, at * 2 (Mich. Ct. App. Feb. 21, 2017).

Although the MOVE Act has not become law, states have begun to echo these courts’ decisions and have enacted or proposed laws prohibiting employers from restraining low-level employees from working for a competitor. For example, in 2017, Illinois enacted the Illinois Freedom to Work Act, which prohibits employers from entering into non-competes with “low-wage workers,” defined in the act as employees making the greater of $13 per hour or the federal minimum wage. Likewise, New Hampshire’s proposed Senate Bill 423 would prohibit non-competes with low-wage workers defined as the greater of $15 per hour or the minimum wage. And New Jersey’s proposed Senate Bill 3518 would similarly prohibit enforcement of non-competes against low-wage employees.

The trend toward prohibiting non-compete provisions against lower-wage and blue-collar employees will likely continue, so what can a company do? First, all employees should sign confidentiality agreements separate and apart from a handbook. A separate confidentiality agreement may provide an employer with attorneys’ fees in the event the company must enforce the agreement. Second, take appropriate and practical measures to protect confidential information and goodwill. Treat employees right. Limit exposure to confidential information. And finally, spread responsibilities for clients among different employees so that goodwill is not caught up in one individual. Of course, Foley can provide practical advice and offer recommendations for employee retention and the protection of company goodwill and confidential information for all levels of employees.