Non-compete agreements have become increasingly common in the past few years. Their appeal to employers is obvious: these agreements mean that when a business loses a valuable employee, they don’t lose a vital competitive advantage as well. However, non-competes have been used so broadly that they have limited the mobility of even lower-level employees, lowering wages, creating a workforce crisis and prompting a backlash.
A non-compete agreement serves an important function. It prohibits an employee from entering into competition with his or her employer either by starting his or her own venture or working for a direct competitor either during the term of employment or for a specified period after the employee leaves. Usually, these agreements apply to employees with special skills (whose departure from a business would create a hardship for the employer) or with access to special information (e.g. customer lists, business methods or plans for new products).
However, businesses have begun applying non-compete agreements more broadly in ways that may harm workers and suppress healthy competition. For instance, several popular fast-food restaurants, including McDonald’s, Arby’s, Panera Bread and Applebee’s, inserted “no-poach” clauses in their standard employment contracts. These clauses forbade workers at these chains from taking jobs at other restaurants within the chains. The clauses meant that workers could not seek better wages or better positions at other locations. A group of attorneys general in 11 states and the District of Columbia looked into the practice, finding that it was both common in the fast-food industry (with up to 80 percent of chains requiring low-level employees to sign non-competes) and a violation of state antitrust laws. The investigation prompted the restaurants to drop the no-poach clauses.
Similarly, WeWork, a company that rents shared work spaces to startup companies, required even custodial workers to sign agreements that prevented them from taking positions with any of the company’s competitors for a 12-month period. Following an investigation by the attorneys general of New York and Illinois, the company agreed to drop the agreements for lower-level workers and limit the scope of the non-compete agreement for managers and skilled workers.
While employers may continue to try to compel workers to sign non-compete agreements, growing concerns about maintaining the economy’s health and fostering competition may put workers in better bargaining positions.
Kathleen Davies is a Staff Writer for GetLegal.com. She is a graduate of the University of Michigan Law School and has practiced law and taught legal writing and advocacy.