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Study Finds Many Companies Require Non-Compete Clauses For Low-Wage Workers


It's standard that a company requires employees in sensitive positions to sign non-compete clauses. That means those employees can't take jobs with direct competitors until a set amount of time has passed. Evan Starr, an assistant professor at the University of Maryland's business school says the concept of a non-compete clause goes way back.

EVAN STARR: They date back to the medieval era where a master craftsman would make untrained apprentices sign contracts that said they couldn't set up shop in the town after they finished being apprentices.

CORNISH: That's similar to a trend Starr has seen in our labor market. He's studied the spread of non-compete clauses among low-skilled workers. I asked him to describe his findings.

STARR: We found that roughly 18 percent of the U.S. workforce is bound by a non-compete currently. Among low-skill workers, let's say without a college degree, it's about 15 percent.

CORNISH: I think the most interesting example that people have noted from your research is the sandwich company Jimmy John's, which requires its workers to sign away the right to work at any sandwich shop within three miles of any franchise in the chain for up to two years after leaving the company. You can't make sandwiches anywhere else. How does this work? Like, what was going on there?

STARR: I think that these are just part of their hiring packet, that they give these packets to franchisees, and franchisees just kind of make their employees sign these contracts if they want to be hired. It's a boiler plate contract in most jobs.

CORNISH: And so we should mention that back in June, Jimmy John's actually agreed to drop their non-compete clause as part of a settlement with the New York attorney general's office. You know, is there any evidence that companies were actually enforcing these clauses with low-wage workers?

STARR: So there is lots of litigation of non-competes, about 1,500 cases a year. There is certainly evidence of non-competes being litigated against bartenders, manicurists, a number of low-skilled positions.

But there's an important point, which is that the low-wage workers are not necessarily prepared to hire a lawyer and go and fight this thing in court, especially if they're making $7 or $8, $9 an hour.

CORNISH: So what's in it for the company? I mean why fight a manicurist, right? Help me understand this.

STARR: For one, it is a clause that allows you to protect against your clients leaving you or following an employee out the door or your intellectual property, that if you've developed a trade secret, maybe the secret formula that an employee might take across the street to a competitor, this contract would prevent against that kind of behavior.

CORNISH: We've been talking sort of big picture - right? - industrywide. But what kind of effect does this have on regular people - right? - who get presented with a contract of some kind when they're just taking a job, you know, at what they think is going to be some regular, entry-level kind of position somewhere? What are the long-term effects for them?

STARR: Workers who sign non-competes or who live in states that enforce non-competes - they leave the industry, or they leave the state. And so these workers often suffer as a result. They have to, you know, forego, all the skills they've accumulated.

There's extreme examples of workers who have spent 20 years developing skills in a particular industry. And they move to a firm, and they've worked there for two months. They sign this contract, and now they're prohibited from working within the industry for two years. They can be very restrictive for some workers.

CORNISH: So can you say no if you want? It seems like if you want the job, you kind of got to go with it.

STARR: In our survey, we find that about 60 percent of workers say that they were scared that they would lose their job if they said no. And so I think that's a big problem - that workers get a job offer; they're excited about it, and they fear that if they try to negotiate or they turn it down, then they won't get the job.

CORNISH: I understand that the White House recently called on states to ban these clauses. Is this something that is growing into a movement? Are there states that are considering it?

STARR: So there are a number of states that are considering it. Illinois just passed a ban for low-wage workers last year. And the White House call is really a ban for only certain types of workers. They didn't go so far as to say that all workers should be free of these contracts, just low-wage workers.

And I think their concern is that these contracts are particularly onerous for employees who have no access to legal counsel or can't afford a lawyer. And these aren't cases that are going to go to court. These are cases where a worker is going to be chilled from accepting a job in the first place.

CORNISH: Evan Starr is an assistant professor at the University of Maryland's Robert H. Smith School of Business. Thank you for coming in to speak with us.

STARR: Thank you. Transcript provided by NPR, Copyright NPR.