Federal Legislation to Address Use of Noncompetition Clauses in Employment Agreements

Employment issues are high on the list of conundrums lawmakers face. These include noncompetition clauses, commonly known as noncompetes, in employment contracts. Noncompetes are legally binding contracts that hold the power to prevent professionals from seeking similar employment opportunities in their field of expertise.¹

Since the Mobility and Opportunities for Vulnerable Employees (MOVE) Act was introduced at the federal level in 2015, many officials have questioned the appropriateness of noncompetition clauses. This congressional legislative proposal, if passed (a move that appears unlikely), would “… prohibit employers from requiring low-wage employees to enter into covenants not to compete…”² In pharmacy, this law would mainly apply to hourly technicians and interns making less than $15 an hour (or minimum wage, whichever is higher) and prevent any future restrictions on time between work, location of work, or scope of work.

The details of what is legally acceptable in these agreements can vary from state to state.³ In 2016, state level action was taken during in Illinois, Massachusetts, and New York to address use of these clauses. California, North Dakota, and Oklahoma already have laws against them.³ This state-level legislative activity begs the question: if many states are willing to enact laws against noncompetes, why is the MOVE Act expected to fail at the federal level?

As many individuals might surmise, this issue is not cut-and-dry, and affects more employees than many would suspect. In 2016, 15% of college graduates and 14% of employees with a salary less than $40,000 were subject to limitations in their employment agreements. With this portion of the workforce affected, this issue can have far-reaching effects.

There are valid arguments on each side of the issue. Supporters of noncompetes believe they encourage competition, emphasize the importance of appropriate training to prevent employees from leaving their positions, and prevent trade secrets from being shared among competitors. The opposition believes noncompetes diminish employees’ rights to switch jobs for better pay and benefits, as well as prevent employees from finding new positions for which they are qualified.³ “Positions” emphasizes the fact that candidates may be precluded from employment at multiple jobs. If the contract is broken, former employers are entitled to seek a court-ordered injunction to ensure the agreement is not breached again.¹

According to an e-mail alert directed to antitrust attorneys working in the health care field, with careful examination, noncompetes could play an appropriate role. The limitations they set are most suitable for employees who have access to proprietary information or delicate trade secrets. Along those lines, restrictions of less than 2 years and that do not specify locations are more likely to be positively received by the courts. The author of the e-mail alert suggested ways to avoid legally unfavorable restrictions by using alternative contractual provisions, such as restricting use of intellectual property.³ In any legally binding agreement, all alternatives should be evaluated for use.

Although technicians and interns may not possess trade secrets warranting a noncompetition clause, their patient relationships are important for employers to protect. The same is true for pharmacists, even though they would not be affected by this particular piece of legislation. Patients tend to gravitate toward those they trust. Therefore, if long-time staff members leave a pharmacy for one that is nearby, patients could follow. Whether this warrants a noncompete clause is debatable. Before signing a contract bearing such a provision, all employees, including technicians, interns, and pharmacists, would be wise to consult an attorney to be certain of the terms and implications of the agreement.³

Rebekah Wahking, a native of Lexington, Kentucky, is a third-year PharmD student at the University of Kentucky College of Pharmacy as well as a student in the MBA degree program at the UK Gatton College of Business and Economics.

Joseph L. Fink III, BSPharm, JD, is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy, Lexington.

References

• Fink III JL. Pharmacy law brief: non-competition agreements in pharmacy practice. The Kentucky Pharmacist. 2007(May);2:16.
• Mobility and Opportunity for Vulnerable Employees Act, S1504, 114^th Congress (2015). congress.gov website. congress.gov/bill/114th-congress/senate-bill/1504. Accessed March 1, 2017.
• AHLA Practice Groups. Authorities increasing scrutiny of employee noncompete agreements [e-mail alert]. Washington, DC: American Health Lawyers Association; June 27, 2016.