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As non-compete agreement use expands, backlash grows

Patrick Thibodeau | Feb. 9, 2016
Legislative opponents say noncompetes can derail careers and damage people financially.

"The strongest argument for reform is the damage it is doing to individuals," Ehrlich said "It derails their careers, it damages them financially, and it creates a situation where they are told they cannot work."

Even if an employee is laid off, a noncompete can still apply, the lawmaker said.

"The larger implications are economic," Ehrlich said. The agreements are hindering competition, she said, "especially by not allowing people to innovate and start their own business through overuse of these agreements. I think it would really bolster the economy to reform these," she said.

"We're hearing stories from all sectors of the economy, where employees are stuck in noncompetes and unable to work in the field they are trained in -- sometimes for years at a time," Ehrlich said.

Ehrlich co-authored legislation this session that seeks a ban on noncompetes, but in the last session a compromise bill limited noncompetes to people making at least $150,000, on the presumption that they have the financial wherewithal to hire legal counsel.

Stanford, as well, would like a ban, but the bill approved by a key committee this week doesn't go that far. The bill would eliminate noncompetes for temporary workers and independent contractors and in cases where an employee is laid off. It also would make it difficult for a noncompete to extend past a year.

One critical aspect of the bill is a restriction it imposes on a court. Stanford said employers will sometimes include a broadly written noncompete agreement and that courts have the ability to change the agreement to make it "whatever they feel is reasonable," he said. If the court changes the agreement, it still leaves employees on a noncompete hook, and the employee may even be responsible for covering the employer's legal fees. Stanford's bill would prevent courts from changing the noncompete.

Stanford said the bill's provision will encourage firms to be "much more clear and reasonable" in their noncompetes, and limit them, as well, to high-level employees.

The Washington Technology Industry Association, a trade group, opposes Stanford's bill.

"Nobody really likes a noncompete until they have intellectual property to protect," said Michael Schutzle, the association's CEO, in an interview. He said state laws in Washington already restrict the use of noncompetes.

"For our industry, it is unnecessary to create a piece of legislation that essentially codifies how the state of Washington already works and then takes away the one piece of small protection that still does exist for our industry," Schutzle said.

But Stanford's arguments are backed by anecdotal examples of broadly applied noncompetes in Washington. In particular, Amazon required warehouse workers to sign a noncompete agreement, The Verge reported last year. The clause, reportedly removed, underscores the idea that noncompetes are being broadly used as boilerplate in all types of employment agreements.

 

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