Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

Low-wage workers stuck with non-compete agreements

Nova Safo Nov 4, 2014

Low-wage workers stuck with non-compete agreements

Nova Safo Nov 4, 2014

If you’re a CEO or a senior manager, you may have signed a non-compete agreement, which would limit or restrict your ability to work at a competing company for a pre-determined period of time after leaving your job. 

But in the last couple of decades, an increasing number of American workers are being asked to sign such deals, including service-sector and low-wage employees.

“We’ve seen them expand to jobs like yoga instructors and camp counselors,” says Orly Lobel, a professor at the University of San Diego School of Law and author of the book “Talent Wants To Be Free,” which addresses the subject.

Take the case of Danny Davies, who worked at a Jimmy John’s sandwich shop. He says when he got hired, he was required to sign a non-compete agreement that limited his ability to work at any other sandwich restaurant.

“They ask everyone to sign it when you get hired,” says Davies, who hasn’t worked at Jimmy Johns since February 2014. And while neither Davies nor his colleagues initially took the agreements seriously, Davies says their views changed once they considered leaving the sandwich shop and finding a job elsewhere.

“I’ve known people that have done this: they start working somewhere…And keep this job secret, just in case,” says Davies, alluding to the concern that the franchise owner of the sandwich shop might pursue legal action against them.

There have been several stories of employees who have been restricted from taking other jobs because of non-compete agreements—from a children’s camp counselor to a physicist. Jimmy John’s is currently facing a class-action lawsuit over its non-compete agreements.

One of the rationales for requiring the non-competes from lower-wage workers is that they may have received a lot of training in their jobs, and if they leave to work at a competing company, that may be an unfair advantage. But Lobel says non-compete agreements have spread beyond even that thinking.

“I teach cases about welders who receive so little training, but they still can’t move to a competitor,” says Lobel.

Lobel says part of the reason for the expansion of these agreements is a shift in business culture. “Today, it’s really human capital that is what creates value,” Lobel says. “And companies have this impulse that the way they’re going to keep people is by cutting off their outside opportunities.”

“Non-compete law is essentially state law, and it varies somewhat significantly among states,” says Michael Rosen, a partner at the Boston law firm Foley Hoag LLP. 

Rosen specializes in non-compete agreements in Massachusetts, which has a relatively permissive non-compete law. Meanwhile, California is one of the most restrictive states. It does not recognize the agreements except for owners of businesses. In the summer of 2014, Massachusetts’ state legislature considered amending non-compete rules, but the initiative failed.

Rosen says there is a place for non-compete agreements in business even for low-level workers, such as those at a high-tech firm with access to confidential code.

“Generally, the legitimate interests that would justify enforcement are…protection of trade secrets or confidential information, and protection of good will,” Rosen says. “But in terms of low-skill areas where confidential information and good will are really not in jeopardy, I think it’s difficult to justify asking folks to sign a non-compete.”

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.