For American workers, noncompete agreements are pervasive – and might hold down their wages
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Part of a functioning labor market is that if companies don’t want to hire you, they don’t have to, all other things being equal. Likewise if somebody doesn’t like their job, they’re generally free to look somewhere else. That’s not always the case, however. Sometimes employees aren’t at all free to look somewhere else. They’re covered by noncompete and no-poaching agreements.
Like Tony, for example (we’re not using his real name because he doesn’t want to get in trouble with his current or future employers). He’s been governed by noncompetes in all of his gigs as a fitness instructor. Those agreements prevented him from working for direct competitors for up to a year at a time.
“There’s no option, no negotiation,” he said. “It’s very limiting and a little daunting to think that your options are so controlled by outside forces.”
About a fifth of the U.S. workforce is covered by noncompete agreements like this. The idea behind noncompetes is usually that a company doesn’t want to share its trade secrets with an employee, only to have that employee take them to a competitor, or become a competitor.
“They are found where you’d expect them to be found. In high-skill, high-wage occupations like executives and high-tech,” says Evan Starr, assistant professor at the University of Maryland’s Smith School of Business.
But noncompetes are in place in many places you wouldn’t expect, he said. “Minimum wage workers. Volunteers. A recent study of hair salons finds that about a third of hair stylists are bound be noncompete agreements,” Starr said.
Starr says the idea in some cases, like with hair salons, is that an employer doesn’t want an employee to steal customers with whom they’ve built relationships.
Another spin on the noncompete agreement is the no-poaching agreement. That’s where two companies agree not to hire each other’s workers. Worker advocacy group Towards Justice is suing Carl’s Jr. restaurants over non-poaching agreements. The lawsuit claims franchises are colluding to hold down wages.
“With these kinds of agreements the employee isn’t even aware of their existence ,” says David Seligman, an attorney with Toward Justice. “These agreements are a tool to undermine worker bargaining power.”
Carl’s Jr. didn’t respond to a request for comment. About 50 percent of major franchises have anti-poaching agreements, Starr said.
Suzanne Beall with the International Franchise Association says these agreements protect unique training that managers at fast food restaurants receive. “The intent of our members has never been to suppress wages or the movement of our employees,” Beall said. “For another franchisee to poach that employee after the expensive training has been concluded has caused some friction between the franchisees.”
That raises questions about what constitutes special training and what is simply job experience that’s central to the simple act of working. Whether noncompete and non-poaching agreements are legal depends on the details and on the state. They are, however pervasive. They have even been imposed on dog walkers and little league soccer coaches.
“In the aggregate there’s good reason to think that non-poaching agreements and noncompetes are suppressing wages,” says Eric Posner, a professor of law at the University of Chicago. He says the agreements, especially among low-wage workers, tilt the scales towards employers when it comes to wages. The University of Maryland’s Evan Starr says there’s some evidence for this: In 2015, Hawaii banned noncompete agreements for tech workers. After that, “The wages of new hires rose 4 percent and mobility of workers increased in tech relative to other industries,” Starr said.
The boundaries of non-poaching agreements are being tested in several court cases, and limits on noncompete agreements are being considered in the U.S. Senate and Massachusetts. Illinois already bans them for low-wage workers.
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