Early this year, Pennsylvania joined the bandwagon of states considering modifying their noncompete laws. (For a comprehensive list and on-going updates, see Changing Trade Secrets | Noncompete Laws.) At that time, it was considering relatively modest changes.
As of November 27, however, some Pennsylvania legislators have moved to the most extreme position: banning employee noncompetes in their entirety. See House Bill 1938.
If successful, Pennsylvania will join the ranks of California, North Dakota, and Oklahoma, the only states that currently ban employee noncompetes (i.e., noncompetes used as part of an employment relationship, as opposed to in connection with the sale of a business or other arrangement). See BRR’s 50-state summary chart.
In support of the proposed change, the bill sets forth the following policy statements:
(1) The Commonwealth has a strong interest in applying its laws and protecting its businesses so they can hire the employees of their choosing.
(2) The Commonwealth has a strong interest in lowering the unemployment rate and providing individuals every opportunity to make a living wage and maximize their talents to provide for their family.
(3) The Commonwealth has a strong interest in promoting increased wages and benefits for working families.
(4) The Commonwealth has a strong interest in promoting innovation, entrepreneurship, business expansion and improving existing business opportunities to attract the best qualified worker for open positions.
(5) The Commonwealth has a strong interest in promoting unrestricted trade and mobility of employees in the work force as well as promoting businesses’ abilities to seek the best qualified candidates for employment.
(6) The Commonwealth has a strong interest in workers with high skill levels to increase their income and benefits.
(7) The Commonwealth has a strong interest in attracting major multinational high-tech companies to this Commonwealth who plan to invest billions of dollars and hire tens of thousands of employees in high-paying jobs.
(8) The Commonwealth disfavors workers being forced to decide between staying in jobs they are overqualified for or leaving the State for better opportunities.
(9) The Commonwealth has a strong interest in providing its residents with the tools needed to stay in Pennsylvania to live, work and raise families.
While standing alone, these policies are certainly quite reasonable, whether they are (all) advanced or, in fact, inhibited by the bill is far more in doubt. See Evan Star and Norm Bishara‘s article, The Incomplete Noncompete Picture, noting that “Despite the rapidly expanding empirical literature, we argue that many of the most basic questions regarding the use and consequences of noncompetes remain either entirely unanswered or at least unsettled.”
In that vein, although many people who advocate for a complete ban point to California’s tech boom and contend that it was the result (at least in part) of California’ noncompete ban (which dates back to 1872). The superficial appeal of that argument is quite apparent. However, Evan Starr’s and Norm Bishara’s analysis calls that conclusion into question. Further, consistent with their analysis, it bears noting that (all other issues aside): (1) there is no similar tech boom in North Dakota or Oklahoma, (2) many other states that enforce noncompetes have booming tech industries, and (3) until 2008, some California courts (mainly federal courts) followed the so-called “narrow restraint” exception, permitting certain (very) narrowly-tailored noncompetes.
This ongoing debate aside, whether the bill advances through the legislative process or, like all other recent similar efforts, fails (see Changing Trade Secrets | Noncompete Laws) remains to be seen.
Stay tuned – we’ll keep you posted.