It is estimated that 1 in 5 workers in the United States, or approximately 30 million people, have signed non-compete agreements. Many say they are unaware of the details and barely remember signing them.
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It is estimated that 1 in 5 workers in the United States, or approximately 30 million people, have signed non-compete agreements. Many say they are unaware of the details and barely remember signing them.
Peter Dazeley/Getty Images
Joby George was 21 years old when he got his first job out of college, working for a software company in the pharmaceutical industry.
He stayed with the company for 14 years, excited to play a role in developing medicines that people take every day. When he finally decided it was time for a change, he realized he might have a problem.
“I don’t remember exactly when I signed the non-compete because there are so many forms you have to sign when you’re hired,” he says.
But there really was. And now, his employer wasn’t happy about him taking a new job at another software company in the pharmaceutical field — even though, George says, he didn’t have any trade secrets to take with him.
Despite this, his company sued.
One in five workers in the US has signed a non-compete
Researchers estimate that one in five workers in the U.S. — about 30 million people — have signed non-compete agreements that prohibit them from working for similar businesses or starting a rival business for a certain period of time (usually six months to two years).
Companies have long said non-competes are necessary to protect their intellectual property and investments.
But now the Federal Trade Commission is investigating banning the contracts, saying they suppress wages, stifle innovation and deprive workers of their economic freedom. This month, the agency proposed a new rule that would ban employers from using them employees and contractors.
Already, some are debating whether the FTC has the authority to make such a sweeping change affecting tens of millions of workers across the country. Others celebrate this move.
President Joe Biden passes his signature pen to Federal Trade Commission Chairman Lina Khan on July 9, 2021, after signing an executive order promoting competition in the U.S. economy. Eighteen months later, the FTC followed up on the executive order by proposing a rule prohibiting non-competes.
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President Joe Biden passes his signature pen to Federal Trade Commission Chairman Lina Khan on July 9, 2021, after signing an executive order promoting competition in the U.S. economy. Eighteen months later, the FTC followed up on the executive order by proposing a rule prohibiting non-competes.
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“People have a fundamental right to make their own career choices,” said Peter Gassner, CEO of Veeva Systems, the software company that hired George and supported him and dozens of others in the fight against non-competes. “Talent mobility has created the world’s most innovative companies.”
The case against George was eventually dismissed.
Low-wage workers such as house cleaners are also associated with non-competes
Najah Farley, a senior staff attorney at the National Employment Law Project, said the FTC’s proposed rule would help protect millions of low-wage workers who are locked out of competition.
“We were definitely encouraging them to do that — make a rule,” says Farley, who has worked on state legislation aimed at limiting the use of noncompetes. “I think they will be able to solve this problem on a very large scale.”
In a previous role with the New York state attorney general, Farley worked on the famous non-compete case against the fast-food sandwich chain Jimmy John’s and later heard from non-competes, including security guards, house cleaners and other low-wage workers. cafeteria workers.
Low-wage workers generally don’t have the ability to challenge their employers or sit out until noncompetes expire, Farley says. The only way many of them can secure a significant increase in wages is to change jobs.
“So if you’re in a situation where you can’t find another job in your industry or you can’t find another job around you, obviously your ability to increase your compensation is going to be limited,” he says.
Cold effect on employees
Matt Marks, a professor at Cornell University who studies employment contracts, says that while non-competes are widespread, there are no lawsuits over them.
“It’s more of a chilling effect — when you’re exposed to a noncompete, you think you can be sued,” he says. “And so it’s more anticipation and fear that drives your behavior.”
Robin Catalano, a freelance writer based on the border of the Berkshires and Hudson Valley, urges other freelancers to carefully review their employment contracts and negotiate any non-compete clauses they may contain.
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Cassandra Sohn
Robin Catalano, a freelance writer based on the border of the Berkshires and Hudson Valley, urges other freelancers to carefully review their employment contracts and negotiate any non-compete clauses they may contain.
Cassandra Sohn
That’s what happened after Robin Catalano left her job of five years managing social media for a blogging and home decor company.
She had signed a non-compete clause that prohibited her from working for another home decor company for a year—a challenge given her expertise in fabrics, paints, and the design process.
Non-compete terms would make more sense if the competitor was a company CEO with plans to start a business, he says. But his plan was to become a freelance writer.
“I’m self-employed. I support myself and my cats,” she says. “It’s not the same.”
Still, for a year, she didn’t present herself to other employers in the home decor industry, a setback for her fledgling business.
“I follow a rule, for better or for worse,” he says, noting that he is now more careful about what he signs.
There are alternative ways to protect trade secrets
Even those who generally support the use of non-competes note that there are other ways to protect trade secrets.
Kevin Vozar, senior director of business development and owner relations at Cabins For You, says his company has a lot of confidential information, such as marketing strategies and pricing tools, that it doesn’t want an employee to see.
The property management company deals in vacation rentals in the Great Smoky Mountains, where competition is fierce.
“We’re all going after the same property owners to add inventory to our platform. We’re all going after the same limited group of vacationers that come here,” he says.
Most of the employees at Cabins For You have no non-competes, Vozar says. Instead, they sign non-disclosure and non-solicitation clauses that prohibit them from revealing company secrets, including client lists.
Still, he says, noncompetes may be necessary in places like research institutes and in industries like biotech.
“I wouldn’t agree with a blanket — you know, getting rid of non-competes nationwide for all industries. I think that’s a little short-sighted,” Vozar said. “I believe there is room for non-competes in a very limited spectrum.”
Employees can protect themselves
Cornell’s Marks hopes that regardless of the FTC’s proposed ban on noncompetes, there will be more awareness everywhere.
“People have to ask, ‘Am I going to have to sign a non-compete?’ They have to discuss for a long time, “he says. “And they can be discussed.”
Catalano, for example, now routinely asks for clauses to be removed from freelancing contracts, and says most employers agree.
In his former private sector life, Marks both signed non-competes and, as a boss, asked employees to sign them. But after working in California, where noncompetes have long been unenforceable, he realized he was a better manager without them.
“How can I keep people busy?” thinking kept me going,” she says. “You have to convince them every day and every week that this is where they want to be.”