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Non-compete agreements to be targeted in Missouri next year

   

As elected officials vacate Jefferson City and return to their families and jobs, The Missouri Times is bringing you updates on initiatives that didn’t quite make it through this year’s shortened session. The “Next Steps” series will showcase progress made on certain legislative issues and take a look ahead at what could come next.


Eliminating non-compete agreements for employees in Missouri would help bolster Missouri’s economy, according to Rep. Travis Fitzwater.

“I’m going to file a bill that would ban non-competes next session,” Fitzwater told The Missouri Times. “Then we will have a discussion about it and see where it goes from there. The ideal scenario for me would be that people will have the mobility to change jobs and work in the profession that they’re trained under without these constraints.”     

Non-compete agreements are used by employers to prohibit workers who are fired or resign from going to work for a competitor. Forms can carry a range of conditions, with some variations restricting employees from moving on to other workplaces within a certain distance or a rival business in the same sector. According to a 2019 report from the Economic Innovation Group, one-in-five employees are currently bound by a non-compete agreement. 

The practice received national attention in 2014 when sandwich franchise Jimmy John’s was taken to court over its use of the forms. The company prohibited employees from moving on to other fast food establishments, a practice that it dropped in 2016 after it was found to be unlawful, according to CNBC.   

“It’s an important change across the spectrum,” Fitzwater said. “Take the situation with Jimmy John’s: It hurts folks in low-income situations, where they want a job and end up stuck in take-it or leave-it contracts, and it really prevents their mobility. I think that’s a real problem, especially in our economy now. It really impacts every level of our economy, from low-wage workers all the way up to highly-paid physicians who make good money but don’t have the opportunity for mobility.” 

Missouri’s stance on the practice was clarified in the 2016 case Durrell v. Tech Electronics, Inc., in which the U.S. District Court for the Eastern District of Missouri found that at-will employment was not an adequate source of consideration for the upholding of a non-compete form.  

Fitzwater recently reached out via social media to Victor Hwang, founder of entrepreneurial advocacy group Right To Start, asking for his support in banning non-compete agreements. 

“If Missouri can take a much stricter view of non-compete agreements, it would free up people to be able to use their talents and either move into new businesses or create their own businesses based on the things they know best,” Hwang told The Missouri Times. “It would have a net effect of increasing entrepreneurial activity, more innovation, create more jobs, and increase productivity in the short-term, and over the long-term you could see more economic dynamism as a whole.” 

This wouldn’t be the first time a non-compete prohibition bill had been introduced in the Missouri House. Former Rep. Keith Frederick sponsored a version of a non-compete piece in 2016, 2017, and 2018, with Fitzwater co-sponsoring the 2017 version. The farthest the bill had gotten was making it out of the House Committee on Workforce Development in 2018. 

“I was going to file the bill myself when I first got to the legislature, but he was the champion of it at the time so I co-sponsored his version of it one year,” he said. “We worked on it together instead of me filing a separate bill, but he could never get any traction on it at the time.”

Another non-compete bill was brought up this year: HB 2326. Sponsored by Rep. Steve Roberts, the bill would have focused on those in the health care profession, meant to increase options in rural areas. 

The bill was opposed by a number of organizations, including the Missouri Hospital Association and SSM Health. Opponents said in committee that hospitals rarely enforced the agreements and that competition could negatively affect small rural hospitals.  

Fitzwater named the medical industry as one of the biggest opponents of banning the practice. 

“I think that hospitals aren’t thrilled with their physicians starting a new practice just around the corner when they had invested in these physicians’ education and training and getting them into the community, so there is an argument to be made that they’re putting resources into their employees,” he said.

According to the report from the Economic Innovation Group, North Dakota, Oklahoma, and California ban non-compete agreements altogether.

“I think you see that played out in California, where they started not recognizing non-compete agreements, and people in Silicon Valley were starting or helping to build these massive tech companies,” Fitzwater said. “They were taking their expertise and hiring tons of new employees as a result of the expansion of their profession.”

Fitzwater said he hoped the bill could move forward and help bolster Missouri’s economy.

“In my opinion, the freedom to start a business should be of the utmost importance, especially for the state. New businesses are the creator of new jobs for our economy, and so giving people the freedom of mobility is really important,” Fitzwater said. “There’s a desire to start new businesses and branch out and non-competes really prevent that.”