Banning Noncompete Clauses

Labor Unions

Marble Falls      The Federal Trade Commission estimates that one in five US workers are bound by noncompete clauses.  President Biden mentioned banning them for many workers in his State of the Union address.  Such agreements aren’t new, but their popularity with employers, both high and low, has continued to rise.  What’s up with all of this?

A noncompete clause is simple enough to understand.  It’s an agreement that some, likely way too many, employers insist that workers sign as a condition of employment.  Usually, there would be a set number of years stipulated where the worker in that profession would not be able to establish a similar business or work for a competitor in the same field.  Essentially, it binds a worker to the employer, blocking the worker’s mobility in seeking greener pastures, more pay, better working conditions, or realizing their own ambition in their profession or field.  The FTC estimates that it takes away about $250 billion dollars in wages from workers.

Employers might argue that some level of noncompetition is fair because they hired and trained a worker, perhaps in a specialized profession, so that it is fair that they don’t take these skills and turn them against the company when leaving.  That argument is hard to make, because the employer has preemptive remedies.  The employer can offer and insist on an employment contract for a certain number of years at a certain wage to recover the cost of training and benefit from the worker’s skills.  In short, the employer can pay for these concerns and privileges on the front end, and maybe in some areas, like engineering or medicine where such agreements are popular, they do sweeten the deal to retain staff signing these agreements without making their workers akin to indentured servants, but how can they be justified for hairdressers, auto mechanics, truck drivers, and the like, none of whom are garnering high-flying paychecks?

In fact, one report finds that “for hairdressers and barbers, who earn $35,000 a year on average according to federal data, non-competes often forbid them from taking a second job, moonlighting as a freelance stylist or moving directly to a competitor for more pay.”  According to a 2017 Cornell University study published recently, salon owners are among the top enforcers of noncompete agreements and filers of lawsuits to uphold them.  “California, Oklahoma, and a handful of other states have declined to enforce noncompetes, and others ban them for workers who earn below a certain threshold.  Yet noncompetes remain in use in those states because bosses expect few employees to challenge them, researchers say.”

Normally, you could expect me to simply say, “hey, you need a union!”  In fact, that’s partially true, because collective agreements and even the simple certifications after workers vote for a union always ban individual agreements with the employer.  Furthermore, no union allows a noncompete agreement to be one of the terms and conditions of employment, and, trust me, we’ve had nursing homes suggest it would be a good idea.  Unfortunately, unions are a better answer for workers who want to stay than they are for workers who want to leave, and that’s the other side of the coin on collective agreements.  All of which makes the government a better place to ban such agreements or mightily restrict them, so they need to get on it.