Treasury Department Report Blasts Noncompete Agreements

 I wrote awhile back about President Biden's executive order on noncompete agreements. In it, he asked the FTC and other agencies to look into curtailing the use of noncompete and other anti-competitive agreements and practices. The Treasury Department just issued a report, presumably in an effort to comply, and it's damning in the extreme on the topic of noncompete agreements. 

Some juicy excerpts:

Firms can engage in tacit collusion by sharing wage information for different occupations, conspiring to fix wages, adopting no-poach agreements where firms agree not to hire other firms’ workers, or forcing workers to sign non-compete agreements that limit their ability to switch jobs.

Wage-setting power is also evident in the large number of workers who are subject to rules and agreements that limit their ability to switch jobs and occupations and, hence, their bargaining power. For example, a recent paper estimates that one-in-five workers is currently subject to non-compete agreements and double that number report having been bound by a non-compete agreement in the past.

Employers can also act to decrease the value of a worker’s outside options. For example, restrictive employment agreements that require workers to repay training costs if they leave the firm or non-compete agreements (both discussed in greater detail below) reduce worker power by increasing the costs of leaving the firm. Those costs are explicit in the case of training repayment programs but implicit in non-compete agreements. By preventing a worker from accepting positions well-suited to their skills, firms decrease the expected gains from a worker’s job search. 

By design, non-compete agreements limit employees’ outside options, which, in turn, weakens workers’ bargaining power and raises hiring costs for other firms. The limits are typically within a geographic area for a specific period and within a set of relatively similar occupations or industries but may be much broader. Balasubramanian (2017) models the effects of non-competes to show how this narrowing of outside options reduces employee bargaining power relative to their employer. All else equal, this leads to what they call a “lock-in” effect: lower worker mobility and longer tenure, as well as a flat or declining wage profile. Both the mitigation of the “hold-up” effect and “lock-in” effect mentioned above can reduce worker mobility. Lower worker mobility increases recruitment costs for all firms as fewer workers are seeking to switch jobs than otherwise would, absent the post-employment restrictive employment agreement. The increases in recruitment costs can lead to worse matches between employers and employees, lowering wages and aggregate productivity (Javanovic 2015).

However, the share of people who negotiate over a non-compete agreement appears to be quite small. Starr, Prescott, and Bishara (2021) find only about 10 percent of employees negotiate over their non-compete agreements. Therefore, it is unlikely that most employees demand (or receive) a compensating differential from signing a non-compete agreement. Furthermore, a worker with little bargaining power (e.g., low-income workers) or who is unaware they are bound by a non-compete (which may be more likely for less-educated workers) is unlikely to be able to secure a compensating differential in exchange for signing a non-compete agreement. To the extent that a compensating differential requires an explicit negotiation, certain workers may be less willing or able to do so—for example, Babcock and Laschever (2009) argue women are much less likely to negotiate during the hiring process. Accordingly, the share of workers whose wages increase as a result of non-compete agreements is small. While one of the main justifications for noncompete agreements (as well as other types of restrictive employment agreements) is mitigation of the “hold up” effect, there are far less restrictive means of addressing this problem. For workers with access to genuine trade secrets, there may be overlapping authority with trade secrecy laws, irrespective of the existence of a noncompete agreement.

Restrictive employment agreements, including non-compete, non-solicitation, and non-recruitment agreements, may reduce firm entry. In aggregate, this tends to lead to reduced demand and wage competition, leading to fewer appealing outside options for similarly situated workers. Samila and Sorenson (2011) find that increases in supply of venture capital funds has a stronger impact on firm start-ups, patent creation, and employment growth in states that have weaker enforcement of non-compete agreements, suggesting non-compete agreements may reduce certain types of entrepreneurial activity.

So long as the perceived probability of an employer attempting to enforce the contract is non-zero, restrictive employment agreements can create frictions. Consistent with this, Starr, Prescott, and Bishara (2020) present survey evidence that workers with non-compete clauses frequently decline job offers because of their preexisting non-compete agreement, even in states that do not enforce such agreements. Likewise, survey evidence also suggests that the incidence of non-compete clause inclusion in employment contracts is not strongly correlated with enforceability of non-compete agreements, which could suggest employers include such clauses even when they do not expect them to be enforceable. This partially occurs because people tend to be risk averse. Therefore, even in places where non-compete contracts are outlawed, the presence of unenforceable non-compete clauses can have a chilling effect on job-switching. The effects may be particularly severe for lower-wage workers, who may have limited access to legal counsel.  

Twenty-one percent of workers in the top income quintile are covered by a non-compete agreement compared to eight percent of workers in the bottom quintile of hourly wages. However, this still leaves millions of workers with minimal employer-specific training subject to non-compete agreements.

Unlike higher income workers, lower wage workers likely lack sufficient bargaining power to refuse a non-compete agreement. As a result, whereas non-compete agreements may increase top-earner wages at the expense of mobility, non-compete agreements appear to reduce both wages and mobility for lower-income earners. For example, Lipsitz and Starr (2021) find that the ban on non-compete agreements for hourly workers (who tend to be lower income) in Oregon increased overall hourly wages by 2–3 percent, with a stronger efect for female workers.

Starr, Prescott, and Bishara (2021) find that the huge number of low-skill workers subject to non-competes suggests that employers routinely apply them to workers who do not possess trade secrets or customer lists and are not given specialized training. They cite as an example a large sandwich chain, which subjected its workers to extremely broad non-competes. Though these non-competes are not likely enforceable under state law, they point out that they may have an in terrorem efect that deters employees from obtaining jobs at competing employers.

A decline in the competitiveness of labor markets lowers worker wages, may decouple wages from productivity, and likely diminishes the relative share of income that goes to workers. Moreover, actions of the firm such as requiring workers to sign non-compete agreements and limiting workers’ access to information diminishes worker mobility, implicitly reducing workers’ bargaining power relative to employers. 

These direct effects on workers’ wages, employment, and mobility have important broader negative impacts on the economy. Higher inequality likely makes it more difficult to sustain sufficient aggregate demand. Lower wages disproportionately impact women and workers of color. A large pool of low-priced labor likely weakens firm incentives to invest and improve productivity, while lower mobility diminishes productivity growth by hindering the reallocation of labor to more productive firms and industries. Non-compete agreements may prevent workers from starting their own businesses and discourage innovation. In short, a growing body of evidence suggests that declining labor market competition may stymie the drivers of U.S. economic growth. 

The use of non-compete clauses, especially among internet-based commerce firms, could be discouraging firm entry (Congressional Budget Office 2020). For instance, Marx, Strumsky, and Fleming (2009) finds that an unintended change in Michigan law boosting the enforceability of non-compete agreements led to sharp declines in the mobility of patent holders. Restricting the use of non-compete agreements and other restrictive employment agreements could allow for new firm creation, as workers at incumbent firms could leave the firm to pursue new ideas, thereby forcing incumbent firms to innovate to stay dominant. 

These are just some highlights. There's lots to unpack in this 68-page report, and I suggest you read it if you are interested. Summary: noncompetes are bad for society, bad for competition, particularly bad for low wage workers, and have the effect of suppressing wages, worker mobility, and innovation. 

And haven't I been saying this all along?

Discrimination Laws And The Will Smith Academy Awards Slap

Everyone who isn't on a desert island with no wifi knows that Will Smith slapped Chris Rock after Chris Rock made fun of Jada Pinkett Smith's alopecia. Lots of folks want blood. I hear many demanding that Will Smith's Best Actor Oscar be rescinded. Some say he should be expelled from the Academy. Others say he shouldn't be allowed to attend any more awards.

So let's look at the Academy's actual rules, and how they've handled similar incidents. Here's the rule that Mr. Smith violated:

In addition to achieving excellence in the field of motion picture arts and sciences, members must also behave ethically by upholding the Academy’s values of respect for human dignity, inclusion, and a supportive environment that fosters creativity. There is no place in the Academy for people who abuse their status, power or influence in a manner that violates recognized standards of decency. The Academy is categorically opposed to any form of abuse, harassment or discrimination on the basis of gender, sexual orientation, race, ethnicity, disability, age, religion, or nationality. The Board of Governors believes that these standards are essential to the Academy’s mission and reflective of our values.

The rules go on to say that, in case of a violation, the Board can consider any discipline permitted in their bylaws, including suspension or expulsion. The rules came out in response to #MeToo. It's notable that none of Harvey Weinstein's or Kevin Spacey's awards were rescinded. In fact, to my knowledge no actor has ever had their award rescinded.

First of all, Chris Rock also violated the rule, since he was harassing Jada Pinkett Smith on the basis of a disability, namely, alopecia. And before you tell me it isn't a disability, I assure you that it can be. For those demanding that Mr. Smith be arrested, it is to Mr. Rock's credit that he has declined to prosecute.

Second, there are many, many incidents that have occurred over the years of actors getting into actual fistfights. Not one was subjected to any discipline by the Academy that I've ever heard of. So possibly a private reprimand, but that's it. Here are 15 of the fistfights, a majority between white males. Here's a list of 9 fistfights, also a majority involving white males. So a single slap is a minor incident compared to the fistfights. Any discipline meted out more severe than a reprimand is going to be subject to discrimination claims.

Finally, if you said that Ted Cruz should have punched Donald Trump when Trump insulted Cruz's wife, sit down and shut up. And don't make me check your social media posts. You know who you are. And I bet some Academy Board of Governors members have some posts in that regard. I hope Mr. Smith's lawyers are searching those posts right now just in case.

In sum, yes, Will Smith violated the Academy's standards of conduct (as did Chris Rock). But his discipline should be proportionate to similar actions by non-Black actors and not a knee-jerk public execution. 

The Only Way "Don't Say Gay" Is Consistent With Title VII Is Complete Gender Neutrality

I'm following up on my post Florida Don't Say Gay Bill Arguably Requires 100% Gender Neutrality Until 4th Grade, one, because I've thought more about it, two, because the law really irks me, and three, because I want to explain why an employment lawyer is writing about an education law.

If I go through my memories of law school, back when dinosaurs roamed, one of the things they taught us is the rules of statutory construction. That is, how judges are supposed to interpret laws after they are passed. And one thing that the rules of statutory construction say is that separate statutes must be read together, when possible, to achieve a harmonious statutory scheme. It is assumed that the legislature does not intend to create inconsistency. (Ha! Have they ever listened to a legislative debate?) But anyhow, that's one of the things a judge has to look at. 

And I keep coming back to two laws that are the backbone of any employment law practice: Title VII, which is the federal law prohibiting discrimination in the workplace, and the Florida Civil Rights Act, which is the state law prohibiting workplace discrimination. We all know that the Supreme Court has already ruled that sexual orientation discrimination is sex discrimination covered by Title VII. So sexual orientation discrimination or harassment based upon sexual orientation violates laws prohibiting sex discrimination in the workplace. That is established law. 

So how does that affect the interpretation of Florida's Don't Say Gay law? Let's look at it again: "Classroom instruction by school personnel or third parties on sexual orientation or gender identity may not occur in kindergarten through grade 3 or in a manner that is not age appropriate or developmentally appropriate for students in accordance with state standards."

Let's look at two second grade teachers. Bob is married to a woman. Barb is married to a woman. Bob and Barb are both asked about their spouses by their students. If school boards, schools, or the state interpret this law to mean that Bob can answer but Barb can't, then they have violated Title VII and the Florida Civil Rights Act. If Barb is disciplined for mentioning her same sex spouse but Bob is not disciplined for mentioning his opposite-sex spouse, that is sex discrimination.

Barb is terrified that she might accidentally mention her spouse during class. If she is subject to extra scrutiny of her teaching methods due to her sexual orientation, that's sex discrimination.

Both Bob and Barb assign students a project to draw their families. Susie draws two dads. When it comes time for each student to discuss their families, do they have to skip Susie? Or tell her she can't mention the dads? Does that make Barb feel upset or attacked? If so, she is being harassed due to her gender. 

The school removes all books with two moms, two dads, any LGBTQ characters. Only straight characters and opposite sex marriages allowed in the library. Barb feels uncomfortable with this. She is being harassed due to her gender.

Now let's look at the gender neutral way to interpret the statute. Both Bob and Barb can talk about their spouses, but not use the terms "husband" or "wife." They can say spouse or partner. Both are treated equally. The kids label moms and dads as "parent" and refer to them as such. Both Barb and Bob are comfortable. The school leaves the books alone. Or removes all books relating to any kind of marriage or romance, including heterosexual ones. Both Bob and Barb feel comfortable. Nobody is being treated differently or made to feel uncomfortable due to their sexual orientation. 

So I repeat my assertion from last week. The Don't Say Gay bill may be the most accidentally woke law I've ever seen. I think that parents and students should insist that it be interpreted as requiring absolute gender neutrality. If schools, school boards, or the state of Florida does otherwise, school employees can bring workplace discrimination claims under Title VII and the Florida Civil Rights Act. And, although I don't do education law, students could have claims under Title IX, the law prohibiting sex discrimination in education.

Don't let the bigots get you down. Make them follow their new law to the letter, assuming it gets signed.

Florida Don't Say Gay Bill Arguably Requires 100% Gender Neutrality Until 4th Grade

 Florida teachers and school boards will have to be very careful now that the Florida legislature has passed the "Don't Say Gay" bill. It's actually called the "Parental Rights in Education" bill, and it addresses a number of issues. The big one, the most controversial one, is meant to keep teachers and schools from discussing LGBT issues in class. But that's not quite what it says.

Here's the provision:

Classroom instruction by school personnel or third parties on sexual orientation or gender identity may not occur in kindergarten through grade 3 or in a manner that is not age appropriate or developmentally appropriate for students in accordance with state standards. 

Nowhere does the bill define either "sexual orientation" or "gender identity" to limit those terms to only LGBT issues. So we're left with the standard definitions of those terms. 

Websters defines "sexual orientation" as "a person's sexual identity or self-identification as bisexual, straight, gay, pansexual, etc. : the state of being bisexual, straight, gay, pansexual, etc."

Yes. Straight is included. Heterosexual is included.

Websters defines "gender identity" as "a person's internal sense of being male, female, some combination of male and female, or neither male nor female."

Yes, people born male and identifying as male are included. People born female and identifying as female are included.

As I read this, strictly construing the actual words used in the statute, there can be no instruction in K-3rd grade using the terms "boys," "girls," "husband," "wife," "mother," or "father." All instruction must be completely gender neutral, using "they" or "them." Students cannot be instructed to use the "boy's room" or the "girl's room." For gym, they cannot be instructed to use the "boy's locker room" or the "girl's locker room."

Is this what the legislature intended? Probably not. It was intended as a measure to bully LGBT students and their parents. But I think those parents can fight back by demanding absolute gender neutrality in their student's education in K-3. Once they're in 4th grade, the school can then instruct them about gender identity, including boy/girl, and sexual orientation, including heterosexuality.

So when teachers tell their students to draw a picture of their families, they can say the picture is of a parent, but not mom or dad. When teachers discuss married couples in history, they can say they were spouses, not husband or wife. And maybe that's the way it should be.

I think parents of LGBT should demand their rights under this statute once it's signed by the Governor. If my kids were still in school, I'd do it immediately. Tell the Florida legislature to be careful what they wish for.

Under the rest of the bill, there's a process. School districts must develop a plan and notify parents of the process to address any concerns, first at the school level, and then at the district level. Then, if not resolved, the parent may either ask for an administrative magistrate to hear the issue or file a lawsuit.

Teachers should advise the schools that they will only teach in gender neutral terms. School boards should set policies in accordance with the actual language of this bill.

Teachers who object to any other form of non-gender-neutral instruction can argue they are protected whistleblowers if they are disciplined for refusing to disobey this ridiculous law.

Harassment, Hostile Environment, and Bullying: How To Figure Out If They're Illegal

Many employees have the mistaken belief that, if they are being harassed by their employer, a supervisor, or a co-worker or they are in a "hostile work environment" that they automatically have a claim against the employer. This is simply not the case. While general harassment and bullying are legal in all states, some states have pending legislation on workplace bullying. Since 2003, many states have introduced workplace bullying laws, none of which have passed (except, oddly, Tennessee, and that's just for government employees).

Illegal harassment: The only types of harassment or hostile environment that are illegal are harassment due to race, age, sex, sexual orientation, religion, national origin, color, disability, pregnancy, genetic information, having objected to illegal activity, having taken Family and Medical Leave, making a worker’s compensation claim, or having engaged in activity that is otherwise protected by a statute (in some states, other categories might be taking domestic violence leave, having a firearm in your vehicle, marital status, because of testimony under subpoena). If your boss is just a jerk or abusive, that is not illegal. And many small employers are not covered by these laws, so you may not be protected at all.

Report it: The other thing that I hear way too much of is, “I was harassed, so I quit and then I told them why.” This is a frequent mistake. The United States Supreme Court (not my rule - talk to the folks in the robes) says that, where an employer has a published sexual harassment/discriminatory harassment policy, the employee must report it under that policy and give the employer the opportunity to fix the situation. If you did not avail yourself of the employer’s policy before quitting, you are giving up your right to sue for a violation.

Employer’s duty: Appropriate remedies may be to discipline or warn the harasser, to move the harasser, under some circumstances to move the victim, to do training, or in extreme cases, to terminate the harasser. But they don’t have to take any action at all, or tell you what they did. They only have a duty to maintain a safe workplace. You might still have to work with the harasser. Many employees simply refuse to go back to work, even where the employer has warned or disciplined the harasser. Sometimes, the fear is justified. But it is the employer’s duty to create a safe workplace. If you return and are retaliated against or continue to be harassed, report it again. If the employer allows retaliation or continued harassment, that is the time to get an attorney involved. Employers will usually take accusations of this type of conduct seriously. Once they are on notice, they will be held liable if they allow it to continue, and they know it. And most employers know that this behavior is disruptive, has nothing to do with making money, and can adversely affect morale. Even if the employer takes no action, by reporting their inaction to EEOC or your state agency, you have put these agencies on notice that this behavior is occurring. The employer will have no excuse when the harasser does it to the next employee. And in some cases, you may have a remedy.

What to put in the report: General harassment, hostile environment, bullying, and other disruptive behavior that is not addressed to an employee due to a protected status or activity is not illegal. So before you write the long letter airing all your grievances against your boss, you may want to have an attorney look at it, or just make sure you are addressing your protected status. If you do complain, put it in writing and call it, “FORMAL COMPLAINT OF SEXUAL HARASSMENT,” or “FORMAL COMPLAINT OF RELIGIOUS HARASSMENT” or whatever category you fit into. Set forth the harassment due to your protected status, and be businesslike. This is not the time to air all your complaints about the business or your boss, only to air the specific complaint about the illegal behavior. While a long letter stating that your supervisor is incompetent or a jerk can and should get you fired, the formal complaint addressing illegal behavior should get a serious response.

Bullies are a huge drain on corporate time and assets. Employers should adopt zero tolerance policies regarding bullies. But even if they do, reporting bullies won’t protect you from retaliation unless your state legislature or Congress wises up and passes an anti-bullying law.

If you are harassed or are in a hostile work environment, make sure you understand your rights and responsibilities. Report it to the employer and give them a chance to address the situation. If they allow the harassment to continue, or if they retaliate, contact an attorney to discuss your legal options.

Florida Employers Must Grant Leave To Domestic Violence Victims

I've always said that Florida is one of the most anti-employee states in the nation. But we do have some pro-employee laws. One law that many employers forget about is Fla. Stat. Sec. 741.313, which requires them to give leave to employees who are domestic violence and sexual violence victims.

Who is covered?: This applies to employers with 50 or more employees and to an employee who has been employed for at least 3 months. “Victim” means an individual who has been subjected to domestic violence or sexual violence.

When are you covered and how long?: "An employer shall permit an employee to request and take up to 3 working days of leave from work in any 12-month period if the employee or a family or household member of an employee is the victim of domestic violence or sexual violence. This leave may be with or without pay, at the discretion of the employer."

What can you use the leave for?: Seeking an injunction, getting medical help, going to a shelter or crisis center, securing the home, and getting legal assistance. Here are the specifics.

This section applies if an employee uses the leave from work to: 

1. Seek an injunction for protection against domestic violence or an injunction for protection in cases of repeat violence, dating violence, or sexual violence;
2. Obtain medical care or mental health counseling, or both, for the employee or a family or household member to address physical or psychological injuries resulting from the act of domestic violence or sexual violence;
3. Obtain services from a victim services organization, including, but not limited to, a domestic violence shelter or program or a rape crisis center as a result of the act of domestic violence or sexual violence;
4. Make the employee’s home secure from the perpetrator of the domestic violence or sexual violence or to seek new housing to escape the perpetrator; or
5. Seek legal assistance in addressing issues arising from the act of domestic violence or sexual violence or to attend and prepare for court-related proceedings arising from the act of domestic violence or sexual violence.

How much notice do you have to give?: If you or a family member are in imminent danger, none. Otherwise, you have to give "appropriate advance notice of the leave as required by the employer’s policy along with sufficient documentation of the act of domestic violence or sexual violence as required by the employer."

What if you have other leave?: "An employee seeking leave under this section must, before receiving the leave, exhaust all annual or vacation leave, personal leave, and sick leave, if applicable, that is available to the employee, unless the employer waives this requirement."

Can your employer tell coworkers about your domestic violence leave?: No. They have to keep it confidential.

Can your employer punish you for taking leave?: No. 

(a) An employer may not interfere with, restrain, or deny the exercise of or any attempt by an employee to exercise any right provided under this section.
(b) An employer may not discharge, demote, suspend, retaliate, or in any other manner discriminate against an employee for exercising his or her rights under this section.

What is your remedy?: You can file a civil suit for damages or equitable relief, or both, in circuit court. You can seek all wages and benefits that would have been due up to and including the date of the judgment had the act violating the law not occurred, but you can't claim wages or benefits for a period of leave granted without pay. You still have to mitigate damages by looking for another job or accepting reinstatement if offered.

So there. I said something good about Florida employment law. Happy? 

This law has been on the books since 2007, and there have been precious few pro-employee laws since then (or before). We can still do much better by looking to other states for some pro-employee laws that make sense.

Claiming A Religious Exemption For Vaccines Or Masks? Here's What You Need To Know

 Lots of folks don't want to wear masks and/or get vaccinated. Almost daily I get inquiries about how to claim religious exemptions for them. 

I don’t know of any religious exemptions for masks. I've never heard of any religion claiming they are not allowed. I'd love to hear from you if you know of one. Some religions do object to the vaccines. However, even ChristianScientists don't have an official policy for them, so it is not very many religions. Catholics internationally object to none, but American Catholics in some areas object to Johnson & Johnson. Even then, it is allowed if it's the only one available. Mostly, I am hearing from people in some more obscure Christian sects that say they are not allowed to be vaccinated.

Here are some things to think about if you are claiming a religious exemption. A company may ask a question like this to follow up a claim of religious exemption:

Please describe above the manner (if any) that the same religious beliefs that are the basis for your objection to the COVID-19 vaccine impacts or informs other aspects of your life or manifests itself in other ways of your life. Please be as specific/detailed as possible.

If your employer asks this, they are looking for examples other than the COVID vaccine relating to, for instance, believing the human body is the temple of God, not wanting the skin to be marked, not wanting to pollute or defile the body, or not using chemical substances to boost the immune system.

Some ways to answer this:

• Can you give examples such as not having been vaccinated, or not being vaccinated since a conversion, not taking antibiotics, or not taking any supplements to boost the immune system, etc? 
• Is there a doctor who can confirm you refused such treatments when ill? 
• Do you also decline alcohol and other similar substances?
• Do you refrain from having tattoos?

They are looking for specific examples, not Bible passages or long rants. If you can show that you have been consistent, then you will likely succeed and be granted a religious accommodation. They might require an alternative, such as masking or remote work instead.

In Florida, all you have to do is fill out one form for a vaccine exemption, and they have pre-filled what you need to provide. All it says is, "Pursuant to section 381.00317, Florida Statutes: I hereby declare that I decline the COVID-19 vaccination because of a sincerely held religious belief, which may include a sincerely held moral or ethical belief." Other states have similar forms that simplify the claim of a religious exemption.

However, while the Florida form is very basic, you'd best have a good answer if your employer finds out you've had other vaccines, or otherwise have been inconsistent in your application of those beliefs. While they can't fire you for claiming an exemption, they can still fire you for lying.

The other issue with a religious exemption is that an employer can claim allowing it will cause a hardship. And a hardship isn't that difficult to prove for a religious accommodation. All they need to show is more than a de minimis cost or burden on business operations. 

So claiming a religious exemption is not something I recommend unless you truly have a religious objection, rather than a personal or political one. If you have a sincere religious belief against vaccinations, then go ahead and request a religious accommodation, but expect that they will require other protective measures or claim an undue hardship and fire you.