Speaker 1: Welcome to brain Stuff production of iHeart Radio. Pay brain
Speaker 1: Stuff Lauren bog Obam Here. If you're working for a
Speaker 1: company that you don't like and decide to go work
Speaker 1: for its competitor instead, will that first company come after
Speaker 1: you for switching jobs? That can depend on whether you
Speaker 1: signed a noncompete agreement. A noncompete agreement is a type
Speaker 1: of contract that prevents an employee from working for a
Speaker 1: competitor within months or even years after leaving a particular company.
Speaker 1: In other words, non compete clauses are designed to protect
Speaker 1: an employer against workers taking their talents and trade secrets
Speaker 1: to the competition. That might make sense for high paid
Speaker 1: corporate executives, TV anchors or tech workers whose sudden departure
Speaker 1: to the competition would pose a real threat. But the
Speaker 1: wild thing about non compete agreements is that American employers
Speaker 1: have asked all types of workers at all age levels,
Speaker 1: design them home health workers, sandwich shop employees, even dog walkers.
Speaker 1: According to data published in the Journal of Law and Economics,
Speaker 1: around one in five American workers are bound by a
Speaker 1: noncompete agreement. For the article this episode is based on
Speaker 1: How Stuff Works. Spoke with study co author Evans Starr,
Speaker 1: an assistant professor of Management and organization at the Robert H.
Speaker 1: Smith School of Business at the University of Maryland. He said,
Speaker 1: you'll find noncompete agreements in every corner of the US
Speaker 1: labor market. They're being signed by interns, minimum wage workers,
Speaker 1: even volunteers for nonprofits in states like California that won't
Speaker 1: even enforce noncompete agreements. According to STARS Research, nearly of
Speaker 1: the eleven thousand, five hundred and five U S workers
Speaker 1: that he surveyed have signed a noncompete agreement at some
Speaker 1: point in their careers, and eight are currently bound by one.
Speaker 1: That includes one third of workers earning forty dollars a
Speaker 1: year or less. Another study by the Economic Policy Institute
Speaker 1: found that tent of employers paying less than thirteen dollars
Speaker 1: an hour required their workers to sign noncompete agreements. Of
Speaker 1: the folks in the top earning tier of their study,
Speaker 1: those making fifty and above, thirty six point five percent
Speaker 1: had signed noncompetes. So do noncompete agreements serve a legitimate purpose?
Speaker 1: The classic argument in favor of noncompete agreements is that
Speaker 1: they take some of the risk out of hiring and
Speaker 1: training new employees. Companies invest time and resources in training
Speaker 1: their workers, and part of that training includes sharing inside information,
Speaker 1: maybe even trade secrets, about how the companies do business.
Speaker 1: Starr said, if the worker is allowed to walk across
Speaker 1: the street and join a competitor, then that puts the
Speaker 1: firm at a competitive disadvantage. The company had to create
Speaker 1: that information and spend lots of money developing it. Another
Speaker 1: argue in favor of noncompete clauses is that workers aren't
Speaker 1: technically forced to sign them. They can be negotiated as
Speaker 1: part of the overall employment contract. If a worker feels
Speaker 1: like they're giving up too much by signing an oncompete clause,
Speaker 1: they can ask for a higher salary or walk away.
Speaker 1: In reality, though, very few people are in a position
Speaker 1: to negotiate, or perhaps they don't consider it a hill
Speaker 1: worth dying on, and Starr said less than ten percent
Speaker 1: of workers negotiate over their noncompete agreement. More than five
Speaker 1: percent of the time, when a worker is presented with
Speaker 1: a noncompete agreement, they simply sign it. If you're one
Speaker 1: of the millions of Americans who have signed noncompete and
Speaker 1: you might assume that very few of these contracts are
Speaker 1: ever enforced, companies would only go after the big fish right.
Speaker 1: A Wall Street Journal analysis found that non compete lawsuits
Speaker 1: increased by six from two thousand to A star said,
Speaker 1: there are about a thousand non compete lawsuits a year,
Speaker 1: and you'll find all sorts of workers that you'd never
Speaker 1: expect to be in the legal record. Consider the home
Speaker 1: health aid who was sued by his Pittsburgh based agency
Speaker 1: when he tried to leave and work for a rival company.
Speaker 1: Or the famous case of the janitor who was sued
Speaker 1: by her billion dollar employer Kushman in Wakefield when she
Speaker 1: tried to work for arrival cleaning business. Of the company
Speaker 1: dropped the case after a public outcry. Relatively few noncompete
Speaker 1: lawsuits ever go to court, though the very existence of
Speaker 1: these agreements is usually enough to intimidate workers, whether you're
Speaker 1: a janitor or a manager, from leaving for a better
Speaker 1: paid job with the competition. They often use broad language,
Speaker 1: not just prohibiting employees from going to a competitor, but
Speaker 1: stipulating that the employee will have to pay the company's
Speaker 1: legal fees should the case go to court. Often, threatening
Speaker 1: letters from a company's lawyers stop employees before a case
Speaker 1: gets that far, but if it does go to court,
Speaker 1: judges generally stick to the janitor rule when determining the
Speaker 1: enforceability of a noncompete agreement. A contract is unenforceable if
Speaker 1: it's so broad that it prevents a worker from taking
Speaker 1: any job with a competitor, including a janitor. A Star
Speaker 1: argues that noncompete agreements are not only bad for the
Speaker 1: workers who signed them, but also for the entire US
Speaker 1: labor market, employers included. He said, Let's say that in
Speaker 1: a certain market, sector of the workers are bound by
Speaker 1: noncompete agreement. If you're a firm trying to fill a position,
Speaker 1: it's going to be really hard to hire an experienced
Speaker 1: worker because everybody is bound by noncompete agreements. The Star's
Speaker 1: research shows that noncompete agreements come up the labor market,
Speaker 1: driving down wages, slowing the hiring process, and making it
Speaker 1: less likely for workers not signing a noncompete to receive
Speaker 1: a job offer. As of right now, various types of
Speaker 1: noncompete agreements are enforceable in forty states. Only California, North Dakota,
Speaker 1: and Oklahoma have outlawed noncompetes for all workers. A handful
Speaker 1: of other states like Maryland have also banned noncompete agreements
Speaker 1: for low wage workers, but in early July, President Joe
Speaker 1: Biden signed an executive order calling on the Federal Trade Commission,
Speaker 1: or FTC, to ban or limit the use of noncompete
Speaker 1: agreements in employee contracts. The FTC now has to consider
Speaker 1: how aggressively it wants to take this issue on. It
Speaker 1: could ban non competes from being used in low wage jobs,
Speaker 1: which some states have done, or it could impose rules
Speaker 1: to make the process more transparent. For example, lots of
Speaker 1: workers are asked to sign noncompete agreements on their very
Speaker 1: first day on the job, when they've already negotiated their
Speaker 1: pay and benefits. The FTC could require early notice for
Speaker 1: such agreements. Star believes that in most cases, non competes
Speaker 1: aren't necessary at all. If a company really wants to
Speaker 1: protect its trade secrets, then it can have workers sign
Speaker 1: non disclosure agreements or n d as. If a business
Speaker 1: wants to protect its investment in clients, then it can
Speaker 1: have workers sign and non solicitation agreement, which would forbidden
Speaker 1: employee from soliciting customers of the business they just left
Speaker 1: for a certain period of time. Four job sectors that
Speaker 1: require months or years of training. There are even contracts
Speaker 1: that require a worker to pay back a portion of
Speaker 1: their training costs if they leave within two years. Starr said.
Speaker 1: The key difference is that all of those other agreements
Speaker 1: are directly tied to the interest that the business is
Speaker 1: trying to protect, but unlike noncompete agreements, they don't restrict
Speaker 1: where workers can go. Today's episode is based on the
Speaker 1: article non compete agreements target janitors as well as vps,
Speaker 1: But why? On how stuff works dot Com written by
Speaker 1: Dave Rhodes. Brain Stuff is production of iHeart Radio in
Speaker 1: partnership with how stuff Works dot Com, and it is
Speaker 1: produced by Tyler Clang. Four more podcasts for my heart Radio,
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