1 00:00:01,920 --> 00:00:06,800 Speaker 1: Welcome to brain Stuff production of iHeart Radio. Pay brain 2 00:00:06,840 --> 00:00:10,959 Speaker 1: Stuff Lauren bog Obam Here. If you're working for a 3 00:00:11,000 --> 00:00:14,040 Speaker 1: company that you don't like and decide to go work 4 00:00:14,040 --> 00:00:17,880 Speaker 1: for its competitor instead, will that first company come after 5 00:00:17,920 --> 00:00:21,560 Speaker 1: you for switching jobs? That can depend on whether you 6 00:00:21,640 --> 00:00:26,119 Speaker 1: signed a noncompete agreement. A noncompete agreement is a type 7 00:00:26,120 --> 00:00:29,280 Speaker 1: of contract that prevents an employee from working for a 8 00:00:29,280 --> 00:00:34,160 Speaker 1: competitor within months or even years after leaving a particular company. 9 00:00:34,640 --> 00:00:38,159 Speaker 1: In other words, non compete clauses are designed to protect 10 00:00:38,240 --> 00:00:42,120 Speaker 1: an employer against workers taking their talents and trade secrets 11 00:00:42,159 --> 00:00:46,640 Speaker 1: to the competition. That might make sense for high paid 12 00:00:46,640 --> 00:00:51,040 Speaker 1: corporate executives, TV anchors or tech workers whose sudden departure 13 00:00:51,159 --> 00:00:54,320 Speaker 1: to the competition would pose a real threat. But the 14 00:00:54,400 --> 00:00:57,720 Speaker 1: wild thing about non compete agreements is that American employers 15 00:00:57,760 --> 00:01:00,600 Speaker 1: have asked all types of workers at all age levels, 16 00:01:00,600 --> 00:01:05,400 Speaker 1: design them home health workers, sandwich shop employees, even dog walkers. 17 00:01:07,440 --> 00:01:11,400 Speaker 1: According to data published in the Journal of Law and Economics, 18 00:01:11,440 --> 00:01:14,600 Speaker 1: around one in five American workers are bound by a 19 00:01:14,640 --> 00:01:18,640 Speaker 1: noncompete agreement. For the article this episode is based on 20 00:01:18,760 --> 00:01:21,600 Speaker 1: How Stuff Works. Spoke with study co author Evans Starr, 21 00:01:21,760 --> 00:01:24,880 Speaker 1: an assistant professor of Management and organization at the Robert H. 22 00:01:24,920 --> 00:01:28,480 Speaker 1: Smith School of Business at the University of Maryland. He said, 23 00:01:28,920 --> 00:01:31,680 Speaker 1: you'll find noncompete agreements in every corner of the US 24 00:01:31,760 --> 00:01:35,600 Speaker 1: labor market. They're being signed by interns, minimum wage workers, 25 00:01:35,760 --> 00:01:39,240 Speaker 1: even volunteers for nonprofits in states like California that won't 26 00:01:39,240 --> 00:01:45,319 Speaker 1: even enforce noncompete agreements. According to STARS Research, nearly of 27 00:01:45,400 --> 00:01:48,400 Speaker 1: the eleven thousand, five hundred and five U S workers 28 00:01:48,400 --> 00:01:51,600 Speaker 1: that he surveyed have signed a noncompete agreement at some 29 00:01:51,640 --> 00:01:55,800 Speaker 1: point in their careers, and eight are currently bound by one. 30 00:01:56,440 --> 00:01:59,920 Speaker 1: That includes one third of workers earning forty dollars a 31 00:02:00,080 --> 00:02:04,200 Speaker 1: year or less. Another study by the Economic Policy Institute 32 00:02:04,360 --> 00:02:07,760 Speaker 1: found that tent of employers paying less than thirteen dollars 33 00:02:07,800 --> 00:02:12,320 Speaker 1: an hour required their workers to sign noncompete agreements. Of 34 00:02:12,440 --> 00:02:14,600 Speaker 1: the folks in the top earning tier of their study, 35 00:02:14,880 --> 00:02:18,919 Speaker 1: those making fifty and above, thirty six point five percent 36 00:02:19,120 --> 00:02:26,120 Speaker 1: had signed noncompetes. So do noncompete agreements serve a legitimate purpose? 37 00:02:27,280 --> 00:02:30,680 Speaker 1: The classic argument in favor of noncompete agreements is that 38 00:02:30,720 --> 00:02:32,840 Speaker 1: they take some of the risk out of hiring and 39 00:02:32,880 --> 00:02:37,359 Speaker 1: training new employees. Companies invest time and resources in training 40 00:02:37,400 --> 00:02:41,360 Speaker 1: their workers, and part of that training includes sharing inside information, 41 00:02:41,600 --> 00:02:44,760 Speaker 1: maybe even trade secrets, about how the companies do business. 42 00:02:46,200 --> 00:02:49,200 Speaker 1: Starr said, if the worker is allowed to walk across 43 00:02:49,280 --> 00:02:51,920 Speaker 1: the street and join a competitor, then that puts the 44 00:02:51,919 --> 00:02:55,120 Speaker 1: firm at a competitive disadvantage. The company had to create 45 00:02:55,160 --> 00:02:59,680 Speaker 1: that information and spend lots of money developing it. Another 46 00:02:59,760 --> 00:03:03,320 Speaker 1: argue in favor of noncompete clauses is that workers aren't 47 00:03:03,360 --> 00:03:06,720 Speaker 1: technically forced to sign them. They can be negotiated as 48 00:03:06,760 --> 00:03:10,040 Speaker 1: part of the overall employment contract. If a worker feels 49 00:03:10,040 --> 00:03:12,799 Speaker 1: like they're giving up too much by signing an oncompete clause, 50 00:03:13,000 --> 00:03:16,359 Speaker 1: they can ask for a higher salary or walk away. 51 00:03:16,880 --> 00:03:19,440 Speaker 1: In reality, though, very few people are in a position 52 00:03:19,480 --> 00:03:22,359 Speaker 1: to negotiate, or perhaps they don't consider it a hill 53 00:03:22,400 --> 00:03:26,239 Speaker 1: worth dying on, and Starr said less than ten percent 54 00:03:26,280 --> 00:03:30,000 Speaker 1: of workers negotiate over their noncompete agreement. More than five 55 00:03:30,040 --> 00:03:32,200 Speaker 1: percent of the time, when a worker is presented with 56 00:03:32,200 --> 00:03:37,120 Speaker 1: a noncompete agreement, they simply sign it. If you're one 57 00:03:37,160 --> 00:03:40,280 Speaker 1: of the millions of Americans who have signed noncompete and 58 00:03:40,400 --> 00:03:43,000 Speaker 1: you might assume that very few of these contracts are 59 00:03:43,000 --> 00:03:46,600 Speaker 1: ever enforced, companies would only go after the big fish right. 60 00:03:48,040 --> 00:03:51,240 Speaker 1: A Wall Street Journal analysis found that non compete lawsuits 61 00:03:51,320 --> 00:03:56,600 Speaker 1: increased by six from two thousand to A star said, 62 00:03:56,920 --> 00:03:59,839 Speaker 1: there are about a thousand non compete lawsuits a year, 63 00:04:00,080 --> 00:04:02,200 Speaker 1: and you'll find all sorts of workers that you'd never 64 00:04:02,240 --> 00:04:06,560 Speaker 1: expect to be in the legal record. Consider the home 65 00:04:06,600 --> 00:04:09,480 Speaker 1: health aid who was sued by his Pittsburgh based agency 66 00:04:09,600 --> 00:04:12,560 Speaker 1: when he tried to leave and work for a rival company. 67 00:04:12,840 --> 00:04:15,160 Speaker 1: Or the famous case of the janitor who was sued 68 00:04:15,200 --> 00:04:18,400 Speaker 1: by her billion dollar employer Kushman in Wakefield when she 69 00:04:18,480 --> 00:04:21,480 Speaker 1: tried to work for arrival cleaning business. Of the company 70 00:04:21,560 --> 00:04:26,520 Speaker 1: dropped the case after a public outcry. Relatively few noncompete 71 00:04:26,560 --> 00:04:29,560 Speaker 1: lawsuits ever go to court, though the very existence of 72 00:04:29,560 --> 00:04:32,880 Speaker 1: these agreements is usually enough to intimidate workers, whether you're 73 00:04:32,920 --> 00:04:35,599 Speaker 1: a janitor or a manager, from leaving for a better 74 00:04:35,640 --> 00:04:39,400 Speaker 1: paid job with the competition. They often use broad language, 75 00:04:39,520 --> 00:04:42,479 Speaker 1: not just prohibiting employees from going to a competitor, but 76 00:04:42,560 --> 00:04:45,240 Speaker 1: stipulating that the employee will have to pay the company's 77 00:04:45,320 --> 00:04:48,640 Speaker 1: legal fees should the case go to court. Often, threatening 78 00:04:48,680 --> 00:04:51,800 Speaker 1: letters from a company's lawyers stop employees before a case 79 00:04:51,839 --> 00:04:55,560 Speaker 1: gets that far, but if it does go to court, 80 00:04:55,800 --> 00:04:59,279 Speaker 1: judges generally stick to the janitor rule when determining the 81 00:04:59,360 --> 00:05:03,680 Speaker 1: enforceability of a noncompete agreement. A contract is unenforceable if 82 00:05:03,680 --> 00:05:06,080 Speaker 1: it's so broad that it prevents a worker from taking 83 00:05:06,160 --> 00:05:10,600 Speaker 1: any job with a competitor, including a janitor. A Star 84 00:05:10,760 --> 00:05:13,360 Speaker 1: argues that noncompete agreements are not only bad for the 85 00:05:13,400 --> 00:05:16,120 Speaker 1: workers who signed them, but also for the entire US 86 00:05:16,240 --> 00:05:20,880 Speaker 1: labor market, employers included. He said, Let's say that in 87 00:05:20,920 --> 00:05:23,960 Speaker 1: a certain market, sector of the workers are bound by 88 00:05:24,040 --> 00:05:27,400 Speaker 1: noncompete agreement. If you're a firm trying to fill a position, 89 00:05:27,600 --> 00:05:30,160 Speaker 1: it's going to be really hard to hire an experienced 90 00:05:30,200 --> 00:05:35,120 Speaker 1: worker because everybody is bound by noncompete agreements. The Star's 91 00:05:35,120 --> 00:05:38,240 Speaker 1: research shows that noncompete agreements come up the labor market, 92 00:05:38,440 --> 00:05:41,880 Speaker 1: driving down wages, slowing the hiring process, and making it 93 00:05:42,000 --> 00:05:45,160 Speaker 1: less likely for workers not signing a noncompete to receive 94 00:05:45,200 --> 00:05:49,240 Speaker 1: a job offer. As of right now, various types of 95 00:05:49,240 --> 00:05:54,280 Speaker 1: noncompete agreements are enforceable in forty states. Only California, North Dakota, 96 00:05:54,360 --> 00:05:58,440 Speaker 1: and Oklahoma have outlawed noncompetes for all workers. A handful 97 00:05:58,480 --> 00:06:01,800 Speaker 1: of other states like Maryland have also banned noncompete agreements 98 00:06:01,839 --> 00:06:07,479 Speaker 1: for low wage workers, but in early July, President Joe 99 00:06:07,480 --> 00:06:10,880 Speaker 1: Biden signed an executive order calling on the Federal Trade Commission, 100 00:06:10,960 --> 00:06:14,039 Speaker 1: or FTC, to ban or limit the use of noncompete 101 00:06:14,040 --> 00:06:18,040 Speaker 1: agreements in employee contracts. The FTC now has to consider 102 00:06:18,160 --> 00:06:20,960 Speaker 1: how aggressively it wants to take this issue on. It 103 00:06:21,040 --> 00:06:24,080 Speaker 1: could ban non competes from being used in low wage jobs, 104 00:06:24,160 --> 00:06:27,080 Speaker 1: which some states have done, or it could impose rules 105 00:06:27,120 --> 00:06:30,800 Speaker 1: to make the process more transparent. For example, lots of 106 00:06:30,839 --> 00:06:33,719 Speaker 1: workers are asked to sign noncompete agreements on their very 107 00:06:33,720 --> 00:06:36,360 Speaker 1: first day on the job, when they've already negotiated their 108 00:06:36,400 --> 00:06:40,000 Speaker 1: pay and benefits. The FTC could require early notice for 109 00:06:40,040 --> 00:06:45,479 Speaker 1: such agreements. Star believes that in most cases, non competes 110 00:06:45,560 --> 00:06:48,440 Speaker 1: aren't necessary at all. If a company really wants to 111 00:06:48,440 --> 00:06:50,920 Speaker 1: protect its trade secrets, then it can have workers sign 112 00:06:51,040 --> 00:06:54,560 Speaker 1: non disclosure agreements or n d as. If a business 113 00:06:54,600 --> 00:06:57,120 Speaker 1: wants to protect its investment in clients, then it can 114 00:06:57,160 --> 00:07:00,440 Speaker 1: have workers sign and non solicitation agreement, which would forbidden 115 00:07:00,520 --> 00:07:03,600 Speaker 1: employee from soliciting customers of the business they just left 116 00:07:03,680 --> 00:07:07,279 Speaker 1: for a certain period of time. Four job sectors that 117 00:07:07,360 --> 00:07:10,640 Speaker 1: require months or years of training. There are even contracts 118 00:07:10,640 --> 00:07:13,040 Speaker 1: that require a worker to pay back a portion of 119 00:07:13,080 --> 00:07:17,480 Speaker 1: their training costs if they leave within two years. Starr said. 120 00:07:17,800 --> 00:07:20,040 Speaker 1: The key difference is that all of those other agreements 121 00:07:20,080 --> 00:07:22,760 Speaker 1: are directly tied to the interest that the business is 122 00:07:22,760 --> 00:07:27,040 Speaker 1: trying to protect, but unlike noncompete agreements, they don't restrict 123 00:07:27,120 --> 00:07:34,960 Speaker 1: where workers can go. Today's episode is based on the 124 00:07:35,040 --> 00:07:38,680 Speaker 1: article non compete agreements target janitors as well as vps, 125 00:07:38,680 --> 00:07:41,160 Speaker 1: But why? On how stuff works dot Com written by 126 00:07:41,200 --> 00:07:44,040 Speaker 1: Dave Rhodes. Brain Stuff is production of iHeart Radio in 127 00:07:44,040 --> 00:07:45,880 Speaker 1: partnership with how stuff Works dot Com, and it is 128 00:07:45,920 --> 00:07:49,200 Speaker 1: produced by Tyler Clang. Four more podcasts for my heart Radio, 129 00:07:49,400 --> 00:07:52,160 Speaker 1: visit the iHeart Radio app, Apple Podcasts, or wherever you 130 00:07:52,200 --> 00:07:53,440 Speaker 1: listen to your favorite shows.