After 22 years working as a nurse in a Wisconsin hospital, Laura wanted a change. Finding a new job would have been difficult enough, but there was a bigger obstacle: a non-compete clause in her employment contract stipulated that she could not work for a rival within a 30-mile radius for at least two years. That didn’t leave the single mother of three with many options.
“I knew they weren’t paying me fairly,” said Laura, who asked not to use her real name because she also signed a confidentiality agreement. When she told her bosses that she was considering leaving, “they threatened me a lot,” saying that she would not be eligible for her annual bonus and that she would have to submit job applications to them, which which she refused to do.
The 75-minute drive to her new job at an academic medical center across the Illinois state line now takes her past several other hospitals that were off-limits.
Laura is one of tens of millions of American workers hit by onerous non-compete clauses. These prevent employees from working for a rival or starting a competing business for a period of time after leaving their job. Workers lose income during the months they are not working – or face steep financial penalties or lengthy legal battles if they break the agreement.
Such contracts are most often intended to prevent well-paid professionals, such as financiers and software engineers, from switching to a competitor armed with valuable inside information. But in recent years, they have become more prevalent, affecting those earning much lower wages — from fast food workers to security personnel — as employers use them as a tool to retain staff and minimize hiring costs on a competitive job market. “This is not limited to technical industries and senior corporate executives,” said David Cabrelli, professor of employment law at Edinburgh Law School. “It channeled.”
The restrictions are appearing globally – from the UK, where more than a quarter of the workforce, or around 10 million people, are subject to non-compete clauses, according to a report from January from the Competition and Markets Authority, to Australia, where around 22 percent of workers are affected. But they are particularly common in the United States. At least 30 million Americans currently work under a non-compete agreement, while 63 million people – or 38 percent of the workforce – have signed at least one during their career, according to a report from the U.S. Treasury Department.
Experts warn that such contracts distort the labor market: They slow hiring, depress wages and could cripple business. “High levels of exit friction are really costing the U.S. economy. . . and that really causes huge inequality,” Cabrelli added.
Non-compete clauses were designed to protect companies’ trade secrets and safeguard their relationships with customers. They date back centuries: the first known court case is said to have involved an apprentice in England in 1414. But while many industries have been inundated with restrictions, employers have sometimes distorted these original intentions by making the terms broader and more egregious .
Deborah Brantley, a bar worker in her 20s, is one example. In a submission to the Federal Trade Commission, a US agency that works in the interests of American consumers and proposes banning non-compete clauses, she described being hit with a restriction while working at a bar in Florida, where she earned $10. one hour. After a year, she found a new job at a nearby family bar. Only then did Brantley learn she had signed a non-compete agreement. Her employer tried to sue her for $30,000 for breach of contract, which barred her from working for a competitor within a 50-mile radius for two years. In his submission to the FTC, Brantley wrote: “What trade secrets can a bartender possess? »
Such extreme examples have triggered a backlash among the public and policymakers, which is beginning to bring about change.
In 2016, American fast food chain Jimmy John’s abandoned a policy requiring its sandwich makers to sign agreements preventing them from working at a similar business nearby for two years, following an investigation by the Office of the attorney general of New York.
Cases like Jimmy John’s “are not what non-compete clauses were designed to do,” said Russell Beck, a Boston lawyer who served on a task force on the issue during the administration Obama. “There is all this abuse and we need to stop it. »
Policymakers are now stepping up their efforts to implement reforms. The FTC will hold a vote Tuesday on whether to adopt its proposal to ban most non-competes, a move the agency hopes could increase U.S. wages by $300 billion a year. Lina Khan, who chairs the FTC and is trying to usher in a more work-friendly era, said last year that “the freedom to change jobs is essential to economic freedom and a competitive, thriving economy.”
The UK government is also considering limiting the duration of non-compete clauses to three months, although this is unlikely to happen before the general election due this year.
Public interest in overturning the status quo is high. The FTC received more than 20,000 submissions during its consultation, with participation from major companies, trade groups, academics and affected workers.
Pamela Abbate Dattilo, a lawyer in Minneapolis, said non-compete restrictions are a “problem that really affects the middle class more than anyone,” noting how such contracts have proliferated in sales and industries such as health. “These sales men and women who make $50,000 to $100,000 a year are stuck in the company they work at because they can’t go anywhere else.”
Lower-wage workers may be particularly vulnerable to restrictions, often because they do not have a clear understanding of what contracts mean or how they might be enforced. “Sometimes they don’t even know they have one until they try to leave,” said Ryan Nunn, the lead writer of the Treasury Department’s report on noncompetes. “Few workers report having negotiated their non-competition clauses, and employers often do not present [the restrictions] once the new employee accepts the position.
Business leaders are generally better informed and have easier access to legal representation, but may still face long periods of exclusion from the labor market.
“The data continues to show that [non-competes] are harmful to workers and businesses,” said Evan Starr, a University of Maryland professor who studies the labor market. “The needle has moved toward a real questioning of non-competition agreements versus less restrictive tools.”
John Terzaken, global co-chairman of the antitrust and trade regulation practice at US law firm Simpson Thacher & Bartlett, said many companies are moving away from strict non-compete rules, in part because the political environment is changing. is strongly opposed to the use of such contractual conditions. .
“Both sides are really talking about the need for people to be able to advocate for themselves for higher wages and so on. ” said Terzaken.
If employers decide to waive non-compete clauses, they still have other options when it comes to personnel control. Terzaken said the focus has shifted to non-solicitation clauses, which prevent staff from accepting co-workers or clients when they leave an employer. At the same time, confidentiality agreements, which prevent employees from sharing private information, can be used to protect privileged information.
But even if the FTC ban passes next week, the agency will likely face legal action, according to Starr. The U.S. Chamber of Commerce, a trade group that represents business interests and has criticized the proposal, said the FTC did not have the authority to adopt the rule. It argues that contracts “can serve vital, pro-competitive interests of businesses and individuals – such as protecting investments in research and development, promoting workforce training, and reducing parasitism”.
A previous attempt by New York state lawmakers to ban non-competes was vetoed by Democratic Gov. Kathy Hochul in December, after several Wall Street firms opposed the rule.
Dozens of U.S. states already impose some limitations on non-competes, but only four states have banned them entirely. California, which first made contracts unenforceable in the late 1800s, is known to have the most extensive protections. In January of this year, the state went further by passing new legislation that protects individuals from legal retaliation if they break their agreements. Workers can seek refuge in California, even if they lived elsewhere when they signed the contract.
But even state bans haven’t stopped some employers from including restrictions in contracts in hopes of deterring staff from seeking employment elsewhere. Some experts fear that if Donald Trump wins the US presidential election, this issue will be pushed to the back burner.
Elsewhere, the condemnation accumulates. Australian politician Andrew Leigh delivered a scathing speech this month about the downsides of non-compete clauses. He cited the case of a choreographer and a speaker on behalf of disabled people who signed such contracts. “It used to be that only the highest-paid business executives were required to take a period of ‘gardening leave’ between jobs,” he said. “From now on, gardeners are forced to take gardening leave. »
