Both of Connecticut’s Senators, Chris Murphy and Richard Blumenthal, are backing a bill to prohibit employers from forcing low wage workers (those who earn less than $15 per hour, $31,200 annually, or who make the applicable minimum wage) to sign non-compete agreements preventing them from freely seeking out better paying jobs. Read more here. This is a great bill. The cost-benefit analysis when it comes to non-competes for lower wage workers does not favor entering into them, and this fact burdens the employees in the equation.
Non-compete agreements are generally used by employers to protect their client lists. A typical example of the use of one of these agreements might be between an outside sales employee and his or her employer- this employee would have knowledge of the clients, and the clients’ business needs, that have been developed by the employer and may constitute a significant investment of time and money by the employer. Sales employees often make multiple visits to a prospective client, and may engage in some “wining and dining” of the clients. Employers often legitimately seek to protect this investment- it would not be fair for the sales employee in this example to take his knowledge to another employer in the area and use it to secure business for the new employer when all of the client cultivation was done by the former employer.
One important aspect of this deal is that the employee in this example is a relatively high level employee. He or she has some bargaining power; some skills that he or she could market to other employers if he or she wasn’t pleased with the idea of signing a non-compete. Outside sales employees are usually exempt from overtime, work largely on a commission basis, and set their own hours. Other examples of employees who typically sign agreements not to compete include employees who are privy to confidential information (such as patent development). A few months back, the Washington Post ran a story that included information about employees who sign non-compete agreements.
The cost to lower-wage employees is high. Lower wage workers do not have the kind of bargaining power that higher-level employees do. A fast food employee often doesn’t have the luxury of turning down an offer than involves signing a non-compete agreement, and may not understand the legal terminology contained in the agreement (or be able to hire a lawyer to interpret the agreement and provide advice). Then, once in a job with said agreement, the lower wage worker is effectively stuck. He or she can’t quit and look for a new job; if the employer refuses to provide a raise, too bad. This pushes down wages paid to these workers because they cannot “shop around” for a better deal.
The benefit to employers of these employees is low. Lower wage positions tend to be those that require less investment in employees- less training and lower-level duties, such that they are unlikely to possess important company secrets. Keeping your fast food workers from quitting and going to a competitor is simply not as big a deal as losing a sales executive to a competitor. It does allow you to exert pressure on them to stay employed, so that you can keep wages low and eliminate turnover due to competition for workers. But that’s not a good reason, of course.
This bill can prevent some of these inequities- let’s hope it’s successful.