The economy thrives when businesses compete with each other for workers and customers. That is hardly a new idea, but it bears repeating as companies increasingly use noncompete agreements to lock up employees and prevent them from taking better-paying or more fulfilling jobs.
Traditionally, companies asked senior executives, brilliant inventors and other highly paid employees to agree not to work for competitors for a year or two. But in recent years, the practice has become more widespread, and nearly one-fifth of American workers, or about 28 million people, are now subject to such agreements. This group includes people in low-wage jobs at fast-food restaurants, warehouses and hair salons. A recent New York Times article highlighted how enforcement of such agreements by businesses has cost some people their life savings in lengthy legal battles and forced others to take low-skilled jobs because they couldn’t work in their chosen profession. Companies have even tried to force workers who were laid off or fired without cause to abide by noncompete agreements.
Such morally dubious practices harm the economy. Studies show that wages are lower in states that let businesses strictly enforce noncompete agreements. Skilled workers leave states that make it difficult for them to switch jobs, researchers have found, moving to places where they can do so more easily. But moving to another state is not an option for workers who do not have specialized skills.
One state that has benefited by adopting a much more enlightened approach is California. The state’s business and professions code made noncompete agreements generally unenforceable there. Experts say the law has helped make that state a hub of innovation and entrepreneurship. For example, workers in Silicon Valley frequently hop between companies and leave to start their own businesses without fear of being sued by former employers. And many of these businesses find ways to protect valuable intellectual property without noncompete agreements.
Proponents of noncompete agreements might argue that lawmakers don’t need to intervene because these are private contracts between consenting adults. But researchers say many workers are not aware that they are subject to such agreements, which are often buried in documents they sign when hired. Often, people are not told that they will have to sign until they have accepted jobs, at which point they may not be able to walk away. Even workers who recognize the perils might see no choice but to consent because they need a job.
State and federal lawmakers should adopt reforms like those the Obama administration recommended last year. For instance, state legislatures and Congress can make noncompete agreements unenforceable when they are applied to employees who earn less than, say, $56,500 — the median household income in 2015 — or to workers who do not have access to trade secrets. They can make contracts unenforceable when businesses lay off or fire workers without cause. States can also require employers to present noncompete agreements before candidates accept jobs.
The spread of noncompete agreements is one of many ways in which the workplace has been rigged against workers and why household incomes have stagnated in recent decades. Other examples include the use of mandatory arbitration clauses in employment contracts and concerted efforts by businesses to diminish the role of labor unions. All elected leaders, especially those like President Trump who claim to represent the interests of working people, need to fight such unfair and unjust practices.
— The New York Times, May 16, 2017