- Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
- In the latest episode, they spoke with Washington state Attorney General Bob Ferguson about noncompete agreements.
- Ferguson says these agreements can seriously damage minimum-wage workers’ future job mobility.
- See more stories on Insider’s business page.
If I asked you to name the job title of a worker who would be required to sign a noncompete agreement, you’d probably think of high-paying jobs – designers of new Apple products, for instance, or CEOs with access to corporate secrets. Noncompetes were designed for just that purpose: to protect a company’s proprietary information by limiting the ability of high-level employees to jump from one company to another in the same field for one or two years. Employees at an executive level are privy to inside information about a corporation that could be fatally damaging in the hands of a business rival, and so in theory noncompetes serve as a kind of cudgel against what could amount to corporate espionage.
In practice, most noncompetes aren’t being used to protect sensitive intellectual property at all
A 2019 study from the Economic Policy Institute found that “somewhere between 27.8% and 46.5% of private-sector workers are subject to noncompetes,” which means anywhere from 36 million to 60 million American workers have signed a noncompete agreement in their current job.
So what does that look like for the average American worker? Consider Mercury’s Coffee, a chain of eight coffee shops employing over 100 people in the greater Seattle area. For years, the chain demanded that its workers sign noncompete agreements preventing them from going to work at any other coffee shop within a 10-mile radius of any Mercury’s location up to a year and a half after leaving the company.
For a barista working part-time, that noncompete agreement would be financially disastrous. They’d have to either switch careers and build a whole new set of marketable skills, find employment far outside the Seattle area, or risk litigation from their former employees at Mercury’s.
In 2019, Washington state Attorney General Bob Ferguson’s office found that Mercury’s had, in fact, threatened legal action against at least two employees who violated the terms of the agreement: “Mercury’s filed suit against one of its former baristas, a store manager who made $17 per hour. The barista left Mercury’s to work for a competitor about one and a half miles from a Mercury’s location. Mercury’s threatened to sue another former employee who left to work at a nearby Starbucks.”
Low-wage workers including fast-food servers, baristas, and even janitors around the country are forced to sign noncompete agreements, even though they don’t have access to sensitive or secret information. So why are businesses demanding that their workers sign them?
Noncompetes hurt employees by restricting future job opportunities
The answer is in the name: Noncompete agreements help artificially stifle competition in the labor market, allowing employers to keep wages low by limiting workers’ employment options. They eliminate the only real leverage American employees have left – the threat that they can leave and find work somewhere else for better pay, benefits, and workplace standards.
A recent report from the Economic Policy Institute found that noncompetes were one of the major factors that over the past 40 years have shrunken the paychecks of the median American worker by roughly $10 per hour. And many of the same franchises that required new employees to sign noncompete agreements also had secret “no-poach agreements” that meant workers at one McDonald’s franchisee could not go to work at another McDonald’s franchise, further suppressing wages and slowing down the job market.
On the latest episode of “Pitchfork Economics,” Washington Attorney General Ferguson joined host Nick Hanauer to explain his fight against these pernicious practices.
“We started looking into these no-poach agreements,” Ferguson explained, “And when we did, my team came to the conclusion that they actually violated antitrust laws. It really is unlawful to restrict a worker’s ability to move from one job to another.”
Ferguson’s office requested franchise agreements from every corporation that had franchises in Washington state and found that nearly 300 companies had some form of a no-poach clause.
“Keep in mind, these are huge corporations, in many situations, and this impacted millions and millions of workers across the country,” Ferguson said.
“We sent them a letter saying, basically, you need to eliminate this no-poach provision, not just for your Washington franchisees, but nationwide. Otherwise, we’re going to file a lawsuit against you” Ferguson said. “And so eventually, over the course of about a year, all of them eliminated these no-poach agreements – not just in Washington, but across the country.” (Sandwich chain Jersey Mike’s was the sole holdout against Ferguson’s threat, but they eventually paid a $150,000 settlement and agreed to drop their no-poach clause after Ferguson sued the chain.)
Fighting against no-poach and noncompete agreements in state legislature
Thanks to Ferguson’s leadership on the issue, the Washington State Legislature passed a law in 2019 which voids noncompetes for employees who earn less than $100,000 annually.
Seven other states have similar laws on the books. But Ferguson notes that noncompetes are still legal in the vast majority of states. He urges people in those states to “talk to your local legislators” to take action on behalf of workers.
Ferguson says some companies are still trying to enforce their illegal no-poach agreements that limit worker mobility, too.
“If there’s no-poach agreements going on that you hear about, write to your attorney general,” Ferguson said. State attorneys general have “the power to shut those down exactly in the same way that I did. The roadmap is there, the work is done. These corporations will cave if an attorney general writes a letter saying, ‘you need to get rid of this, it’s unlawful.'”
But while the fight for worker mobility has largely taken place on the state level up until now, Ferguson sees some hope on the national level.
“The Biden administration has set a goal of eliminating or substantially narrowing these no-poach and noncompete clauses that have been so prevalent and pervasive throughout our economy,” Ferguson said.
For workers, that could result in a big raise as employers nationwide will once again have to compete to offer the best wages and benefits in order to attract good employees – you know, the way the labor market is actually supposed to work.