Non-compete clauses: the reality in the United States

1 in 6 people in the food industry sign a non-compete agreement upon entering the job, preventing them from working at any different restaurants in the area. The bosses are preventing their employees from leaving unsatisfactory jobs, keeping them trapped and limiting their bargaining abilities. For some, that means being trapped with poverty wages in locations where no different jobs are available. 

Upon signing a contract, in 2019 around 30% of workers in the private sector had to agree to a non-compete agreement (NCA), preventing them from seeking employment at a similar company in the same geographic area after the termination of their contract. NCAs are mostly common amongst the highly educated who pick up specialized jobs, but they can also be seen amongst lower-paid and lower-skill professions. NCAs prevent the workers from competing freely on the labor market which can leave them stuck in a unsatisfactory situation.

Justification

Businesses justify non-compete agreements by saying that they have invested tons of resources in training the laborer and that simply letting them go away to a competitor will hurt their business. At first glance, people might side with the business side, arguing that heavily-specialized professions require the employee to develop a variety of skills on the shop floor, dealing with specific machinery that can be learned only inside the company. Business act like the entire education and professional training that the worker benefitted from happened within the confines of the company and that prior they did not have any aptitudes.

What is the problem?

The problem with NCAs clauses rests in company enforcing them across a variety of professions, from people working in the food industry, packaging meals, to primary care  physicians. According to a 2018 survey, roughly 45% of primary care physicians in group practices are bound by such clauses, preventing them from moving freely to practice in a different hospital. Luis Garcia, a family physician wrote for the American Academy of Family Physicians that “By restricting where a doctor can practice, health systems end up treating their physicians and, by extension, their patients, as commodities rather than as people.”

Over the years, non-compete clauses have been present in the fast food industry, with people flipping burgers or frying potatoes having to sign one before coming the job. The justification was the same as for more specialized professions: the company trains the employees and they cannot afford having them walk out of the door and use those skills at a different job. The problem with their reasoning is that flipping burgers or preparing highly-processed food is a skill everyone can intuitively figure out or learn from watching Youtube videos. In 2016, the sandwich maker Jimmy John’s was sued for prohibiting their employees for working at any other place selling “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches within 2 miles of any Jimmy John’s shop”. According to a 2021 study, roughly 1 in 6 people employed in the food preparation or service industry are bound by non-compete clauses.

In using those clauses, employers aim to keep workers longer on the job, to prevent the competitor from taking away their people in which, presumably, they have invested money. In reality, NCAs limit the workers’ ability to bargain for higher wages and to push for better working conditions, trapping them in undesirable situations for a long time. The lower wages which are a result of the lack of competition, combined with rising prices have cost the median American household $5000 per year in 2020. The expectation for that number is to have increased by now, when the inflation rate of 9.1% has been the highest in the past 41 years.

Biden’s labour policy

In order to curb the detrimental effects of NCAs, President Biden passed in July 2021 an executive order promoting competition in the American economy, banning or limiting the non-compete agreements. Maine and Maryland have had legislation prohibiting non-compete clauses from being implemented in low-skilled jobs since 2019 and in California they are outrightly prohibited. Regardless of their prohibited status, employers do not shy away from adding non-compete clauses even if those are unforceable, taking advantage of workers’ fear of retaliation in case they bring up any problems existent in the contract. Legal research has shown that in California, a state with a strong stance against anticompetitive restraints, the incidence of non-competes is not necessarily different than in the enforcing jurisdictions. 

The problem is not necessarily putting them into law, but getting the information to the people and making sure that workers know about how illegal those are and what their rights are. In 2019, most employees argue that they would have rather accepted the non-compete clauses than arguing over, shrinking their power and limiting their negotiations capabilities.

Conclusion

Business are still afraid that employees will run away with their secrets and tech firms, such as IBM, Amazon or Microsoft, sued their previous employees in the past. Passing a NCAs is not the way to go when a tech firm is afraid of their cloud engineer running to a start-up, since they can sign a non-disclosure agreement which under the Trade Secrets Protections Act will enable a company to bring a lawsuit to anyone that shares the company’s trade secrets. 

In the midst of the great resignation and of the recent unionization waves, combined with Biden’s executive order, workers nowadays have the chance to say no when a non-compete contract is shoved in their faces. Though, many are still facing the pressure to accept anything that is handed to them. Those we must help and Biden must make sure that his executive order is not only on paper, but is enforced across all lines.

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