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