As the job market becomes increasingly competitive, many employers turn to non-compete agreements to protect their businesses. These agreements prohibit employees from working for a competitor or starting a competing business for a specified period after leaving their current job. However, there is growing concern about the impact of these agreements on workers and the economy as a whole.
On January 5, 2023, the United States Federal Trade Commission (FTC) proposed a rule that would ban almost all employee non-compete restrictions. A vote on the final rule may take place in April 2024. This federal law would take precedence over existing state laws and retroactively invalidate existing agreements. Most states currently allow non-compete agreements with reasonable duration and geographic restrictions. They are banned in a few states, and more states are enacting income thresholds.
The Crone Law Firm takes a closer look at what this means for workers and employers.
What are Income Thresholds?
Income thresholds are limits on the use of non-compete agreements based on an employee’s salary or wages. Essentially, if an employee earns less than a certain amount, they cannot be subject to a non-compete agreement. This is intended to protect lower-wage workers who are less likely to have access to the legal resources necessary to challenge these agreements.
The specific income thresholds vary by state. For example, in California, non-compete agreements are generally unenforceable except in limited circumstances, regardless of an employee’s income. In Massachusetts, non-compete agreements are only enforceable against employees earning more than $80,000 annually.
Other states, such as Illinois and Maryland, have established income thresholds that increase over time. In Illinois, for example, the income threshold for non-compete agreements was $13 per hour in 2017. It has since increased to $14 per hour in 2018, $15 per hour in 2019, and $16 per hour in 2020.
Why are Income Thresholds Important?
Income thresholds help to protect lower-wage workers from the negative effects of non-compete agreements. These agreements can limit workers’ ability to find new jobs and advance in their careers, ultimately leading to lower wages and less economic mobility. By establishing income thresholds, states can ensure that non-compete agreements are only used to protect legitimate business interests, rather than to unfairly restrict workers’ opportunities.
However, it’s worth noting that income thresholds are not a perfect solution. Some critics argue that these thresholds are arbitrary and can be difficult to enforce. Additionally, some employers may simply raise wages or reclassify workers to avoid the income threshold requirements.
What’s the Future of Non-Compete Agreements and Income Thresholds?
The use of non-compete agreements is likely to continue to be a topic of debate in the coming years. As the economy continues to evolve, there will be ongoing discussions about how to balance the interests of employers and workers. Income thresholds are just one of several approaches that states are taking to regulate the use of non-compete agreements. Moreover, a new federal ban on non-compete agreements will not entirely end the matter; numerous legal challenges will likely ensue.
In the meantime, workers should be aware of their rights and options regarding non-compete agreements. If you’re asked to sign a non-compete agreement, it’s important to read and understand the terms of the agreement carefully. You may also want to consult with an employment law attorney to protect your rights.
Sound Legal Guidance for Non-Compete Agreements
Non-compete agreements can significantly impact workers’ job prospects and economic mobility. Income thresholds are one way that states are working to address these issues and protect lower-wage workers. As the debate over non-compete agreements continues, it’s important for workers to stay informed about their rights and options.
The Crone Law Firm handles employment law matters across Tennessee, Arkansas, Missouri, Illinois, Kansas, and other Southeastern states from our offices in Memphis, Chicago, and St. Louis. Contact us when you have questions about non-compete agreements or other employment-related matters.