Imagine this: You’ve been
working hard at your job for a while and folks are starting to notice. One
person who noticed is the owner of a company similar to the one you work for,
but that pays more and has better benefits. So when you get offered a new job,
you’re all set to reap the rewards for your hard work, right? Not so fast.
If you are like millions of
other American workers, you better make sure that you haven’t signed something
called a “non-compete agreement.” It may have been just one of many forms at
work that you didn’t think much about at the time. But non-competes can significantly
restrict workers’ options, stifling innovation and entrepreneurship in the
process.
And although these agreements were originally associated with highly-paid executives who knew the recipe for the company’s secret sauce, more and more workers toward the middle and lower end of the wage scale have seen non-competes become a requirement at their jobs.
And although these agreements were originally associated with highly-paid executives who knew the recipe for the company’s secret sauce, more and more workers toward the middle and lower end of the wage scale have seen non-competes become a requirement at their jobs.
That’s why the White House’s call to action today on non-compete
reform is so important. Earlier this year, President Obama launched an
initiative to promote competition throughout the economy. As part of these
efforts, the White House and the Treasury Department issued reports this
spring on non-compete agreements, which can hold back both wages and
entrepreneurship. And today, after talking with workers and experts around the
country, we are taking the next step.
A non-compete agreement is a
contract that prevents someone from going to work for another company for a
certain period of time after leaving their job.
The primary rationale for
non-competes is protecting trade secrets. But there are other means of
protecting trade secrets, and non-competes severely restrict workers’ mobility.
They are an overbroad, blunt instrument directed at a much narrower problem,
and they should be the exception, rather than the rule. Instead, we are seeing
a gross overuse of non-competes today.
In limiting workers’ ability
to take higher-paying jobs, non-competes also reduce workers’ bargaining power
with their current employers. Research shows that states where non-competes are
strictly enforced have lower wage growth and lower job mobility than states
that do not. Non-competes also serve to reduce innovation and entrepreneurship
by preventing workers from starting their own businesses.
Even in states where
non-competes are generally not enforceable – or in situations where they would
be considered unreasonable and unenforceable under state standards – they can
chill workers’ behavior. Low-wage workers, in particular, are unlikely to
consult an attorney about whether their non-compete is enforceable or take the
risk that they will end up on the wrong end of a lawsuit.
Among the most striking
examples of misuse, Jimmy John’s made news by requiring its sandwich makers to
sign non-compete agreements that prevented them from working for other stores
that sold sandwiches. Can you imagine?
Following an investigation by
the New York Attorney General, Jimmy John’s agreed to remove non-competes from
its hiring documents and advise its franchisees that non-compete clauses are
void, but their non-competes were not an isolated example. Fifteen percent of
American workers without a college degree are currently covered by a
non-compete, whether enforceable or not.
Fourteen percent of those earning less
than $40,000 are covered by a non-compete. Overall, 30 million Americans are currently
covered by a non-compete.
We owe it to these workers to
do everything we can to remove roadblocks to greater opportunity and higher
wages. Our economy has come roaring back from the worst economic crisis of our
lifetimes. The unemployment rate has been cut in half since the depths of the
Recession. We’re experiencing the longest streak of overall job growth on
record. And wages have started to tick up more and more. But the recovery
hasn’t touched everyone. Significant inequality and major opportunity gaps −
decades in the making − remain. And even though there are 5.4 million job
openings available right now, that’s of no use to workers who are prevented
from taking those jobs because of a non-compete.
So today, we are adding our
voice to the White House’s call for non-compete reform. Let’s break down
barriers to opportunity for America’s workers and promote an ever more dynamic
economy at the same time.
Sharon Block is the senior
counselor to the secretary of labor and principal deputy assistant secretary
for policy at the Labor Department.
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