Noncompete agreements—often included as part of an employment contract—require a worker to agree not to work for a competing company after leaving an employer. These agreements often last for a specific period of time and encompass a specific geography.
Historically, noncompetes have been used with highly skilled and trained high-wage earners. Noncompetes have now become increasingly frequent across all wage levels and positions. Researchers from the University of Maryland and the University of Michigan, Evan Starr, J.J. Prescott, and Norman Bishara, recently released the findings of a survey of more than 11,500 workers, which found that 18 percent of U.S. workers—28 million Americans—are currently subject to a noncompete agreement and that 38 percent of workers have signed a noncompete at some point in their lives. More than one-third of workers with no college degree reported signing a noncompete at some point in their career.
In addition, Corporations are increasingly suing to enforce these agreements. A study commissioned by The Wall Street Journal found the number of workers sued by former employers for breach of a noncompete agreement rose by 61 percent between 2002 and 2013.
Noncompete agreements reduce a worker’s ability to leave a job—or even consider leaving—since they are unable to advertise their skills or even be recruited by an employer’s competitor without the threat of litigation. When a worker wants to move to another job, they may be forced to move to a different field, where their skills are less applicable
Noncompete agreements prevent workers from striking out on their own to create their own small companies. Noncompetes are bad for employees. They limit mobility in the job market and stagnate wages.
Backlash is now building against noncompetes. Courts across the country are refusing to enforce non-competes against lower-wage employees. That’s good news for workers, because eliminating barriers to changing jobs can help stir the kind of wage growth workers haven’t seen since before the last recession.
Courts have not favored noncompetes that aren’t necessary to protect important business interests and that limit workers’ ability to obtain decent wages. States have now started enacting laws to put some restrictions on noncompetes. Three states—California, Oklahoma, and North Dakota—have virtually banned enforcement of noncompete agreements.
Several other states provide protections to ensure that noncompetes are not overly burdensome to workers. At least six states use state statutes to limit the duration of noncompete agreements, ranging from one to two years; and a number of states have exempted specific occupations from noncompetes, including health care providers, broadcasters, accountants, and tech workers.
States have also begun to propose laws prohibiting employers from restraining low-level employees from working for a competitor. In 2017, Illinois enacted the Illinois Freedom to Work Act, which prohibits employers from entering into non-competes with “low-wage workers,” defined as employees making the greater of $13 per hour or the federal minimum wage. New Hampshire and New Jersey are considering laws that would prohibit an employer from requiring a low-wage employee to sign a noncompete agreement.
Despite a growing economy and a tight labor market, too many American workers are stuck in jobs they do not want with wages that are too low. Noncompete agreements contribute to this by reducing workers’ wages; restricting job mobility; and limiting entrepreneurial opportunities. By pushing back against the unreasonable enforcement of noncompete agreements, courts and state legislatures can help to restore workers’ power in the labor market and freedom in the economy which is a win for American workers.
For more information about Noncompete Agreements See:
Employers Face Hurdles in Enforcing Non-Competes Against Lower-Wage Workers
The Freedom to Leave
Resistance to Noncompete Agreements Is a Win for Workers