Once the province of high-level workers with access to company secrets, noncompete agreements have now become more common in lower-wage fields. Fast-food workers, unpaid interns and even volunteers for nonprofits increasingly must sign agreements restricting their post-employment mobility.
Evan P. Starr is professor of labor and employment relations and of economics at the University of Illinois. He spoke with News Bureau business and law editor Phil Ciciora about the use and impact of noncompete agreements.
Noncompete agreements have begun to trickle down to low-wage workers. When and why did this trend start?
The assumption that noncompetes started with upper-level management isn’t entirely true. Believe it or not, noncompetes have been around since the 1400s. They started with master craftsmen who took on untrained apprentices, who you could think of as the medieval version of minimum-wage workers. The apprentices would receive training over the next six to seven years, and their noncompete agreement would prevent them from practicing in the same township or village as the master craftsman once their apprenticeship was finished.
In some sense, this historical example is not dissimilar to the case of today’s low-wage workers. While low-wage workers may not appear to be an immediate threat to steal business from their employer, a few years down the road, they may be. Given that firms often can get workers to sign noncompetes without any sort of negotiation, I am not surprised that companies ask low-wage workers to sign them.
What is your take on the current situation? Has it gone too far?
There is outrage that low-paid workers sign noncompetes that appear to be overly broad in their restrictions. I understand this outrage, because it feels like firms are taking advantage of their workers. Yet this outrage, while understandable, is misplaced for two reasons.
First, workers still readily sign these contracts. Clearly, they are not outraged or informed enough about the broad restrictions not to take the job in the first place. If they were, then firms would need to change their policies to attract workers.
Second, in most states, firms face no legal penalty for writing noncompetes with overly broad restrictions. In Illinois and many other states, courts will reform overly broad noncompetes to be less broad, and subsequently enforce them.
For example, suppose a worker signs a 20-year noncompete contract. Every state in the U.S. would deem that overly broad. But only some states would throw out the entire contract because of its broadness. Most states would say, “Twenty years? Let’s cut that down to two and then enforce it.” As a result, firms have an incentive to write broad contracts, knowing that the worst-case outcome is that the terms are narrowed a bit.
But even if businesses are pushing the envelope, how many low-wage workers are going to take them to court? Is there a chance that courts would uphold the noncompete clause?
Noncompetes have previously been upheld against manicurists, liquor deliverymen, carpet installers, security guards and other low-wage occupations – occupations that you wouldn’t think would be in court litigating a noncompete. So there is a chance that courts would uphold the noncompete, though I don’t think it’s likely.
The outcomes in court are important because they can give workers and employers a sense of how likely the contract is to be enforced. However, I am more concerned about the workers who sign noncompetes but do not go to court, which is the vast majority of them. If the provisions in the noncompete are overly broad and workers feel obliged to obey them, then they may make different post-employment mobility decisions than they would have otherwise. A narrower noncompete gives the worker more freedom to make career-enhancing moves, even if the worker abides by it.
Why not use a nondisclosure agreement instead of a noncompete agreement?
Companies often use both noncompetes and nondisclosure agreements in tandem, but noncompetes are preferable because they prevent workers from moving to competitors in the first place. A nondisclosure agreement allows the movement but prevents the dissemination of confidential information. Furthermore, nondisclosure agreements can be hard to enforce in court because they require proof that confidential information was misappropriated, which may be hard to find.
My hunch is that firms want to protect their business as much as they can. And noncompetes offer very strong protection – probably too much protection, because they prevent the move to a competitor or the creation of a competitor, even if the worker’s new job has nothing to do with their old job.
What can regular workers do to protect themselves?
Firms can take advantage of workers who don’t know the law and don’t anticipate whether they will be asked to sign a noncompete. Many firms will not give workers notice that they will be asked to sign a noncompete. If workers are surprised by the noncompete, then they will have very little leverage, especially if they’ve already turned down other job offers, moved somewhere for a job, signed a lease or made other commitments.
So I would recommend that before accepting a job offer, even if you believe you’ll stay in the job forever, ask if the firm will require you to sign a noncompete and what the restrictions will be. And even if you have signed a noncompete, remember that it may not be enforceable, depending on the state, and can always be renegotiated later.
