With the economy gaining steam, and the unemployment rate dropping, more workers are starting to look around for better jobs. But some of them are discovering their options are far more limited. They are the ones who have signed “non-compete agreements,” which prevent them from going to work for their employer’s competition.
It’s not just high-paid technology executives, who could damage their former employer with the client Rolodexes and intellectual property they carry somewhere else. It’s also sandwich makers and warehouse workers, who have fewer economic options if they’re constrained after they leave, and less of a cushion if they can’t find new employment quickly.
Senators Al Franken (D-Minn.) and Chris Murphy (D-Conn.) want to change that. They plan to introduce a bill tomorrow -- catchily titled the Mobility and Opportunity for Vulnerable Employees (MOVE) Act -- that would ban non-compete agreements for workers making less than $15 an hour, or $31,200 a year, unless the minimum wage in their jurisdiction is higher.
"From 2008 to 2013, you didn’t hear anything about this stuff, because people weren’t mobile," says Christopher Collins, director of the Center for Advanced Human Resource Studies at Cornell University. "It’s always when the economy ticks back up, and people worry that they’re going to lose talent, that people start thinking about this stuff."
A recent study found that 12.3 percent of workers across all income levels reported being bound by a non-compete -- although the incidence is much higher among computer engineers than line cooks.
Jay Starkman, chief executive of an outsourced human resources provider called Engage, says he’s running into them more often. For some companies, the question becomes: Why not make your employees subject to a non-compete agreement? "These days companies stick in non-competes for just about every position," Starkman says. "We’re seeing them for low-level tech people, hairdressers, payroll processors.”
When used properly, non-compete agreements can incentivize business owners to spend more money on their workers, since they have some assurance their investment won't pick up and walk out the door. Evan Starr, an assistant professor at the University of Illinois who did the study finding how prevalent non-competes are across the economy, found that employer’s imposing the clauses often offer more training and bigger raises.
But non-compete agreements can have hidden downsides for employers as well. First, it creates a recruiting problem: Talented workers might not want to come work at a company that constrains their future options. And second, it rarely helps employee morale.
"Even if you were able to get the employee to sign a non-compete, if that employee is only staying at your company because he can’t leave, you’ve got a bad employee," Starkman says. "So you’ve got these demotivated employees who are trapped."
Currently, non-competes are governed by a patchwork of state-level regulations, some of which are coming under scrutiny. Massachusetts, for example, is considering almost banning non-compete agreements completely -- following the lead of California, where such accords have long been unenforceable, contributing to a freedom of movement and ferment of ideas that gave rise to what we know today as Silicon Valley.
Of course, non-compete clauses are hardly a low-wage worker's biggest problem, compared to the stresses of just-in time schedules, scarcity of paid sick leave, and minimum wages that lag the cost of living. And even reforming occupational licensing practices might do more to help people start out in slightly higher-wage professions, like cosmetology and plumbing.
It’s also unclear who exactly uses non-compete clauses for low-wage workers. Starr's research finds that about 10 percent of workers who make less than $40,000 a year are bound by one, but backers are hard-pressed to find examples outside media reports of them being used at Jimmy John's Sandwiches and Amazon, the latter of which voluntarily dropped the language from its contracts after The Verge reported their existence. Jimmy John’s did not respond to a request for comment by press time. (Amazon.com chief executive Jeffrey P. Bezos owns The Washington Post). Finally, courts usually won't enforce non-compete clauses unless an employer can show it was legitimately trying to protect privileged information, rather than simply prevent workers from going to work for a shop down the street.
Nevertheless, National Employment Law Project federal advocacy coordinator Judy Conti says higher-wage workers are often better equipped to fight non-competes when they do come up. Sometimes, the new employer will even pay the legal costs of getting an attractive recruit out of a non-compete from their former employer.
"This is one way to take the tools of intimidation out of the hands of the low-road employer," says Conti, who helped craft the legislation.
This article has been updated to include more information about the prevalence of non-competes.