The White House attacks the spread of abusive non-compete agreements
The White House released a report this morning that illuminates another part of the complex problem of stagnating wages—the rise of non-compete agreements and their spread to low-wage employment. Non-compete agreements, or “non-competes,” are contracts that ban workers at one company from going to work for a competing employer within a certain period of time after leaving a job. They can make sense when a worker has trade secrets or intellectual property in which the employer has invested. But they make no sense when applied to health care workers, retail and restaurant employees, and other low wage employees. All they do is limit opportunity and shackle people to an employer who will have less incentive to give a raise to retain them.
Employers are imposing non-competes in occupations with no possible trade secret justification—even doggy day care providers! The Treasury Department has found that one in seven Americans earning less than $40,000 a year is subject to a non-compete. This is astonishing, and shows how easily businesses abuse their power over employees and restrict their rights, as they increasingly do with forced arbitration clauses that take away the right of workers to seek justice in the courts. In both cases, workers often accept jobs without ever knowing that they have signed their rights away.
The Treasury Department has done groundbreaking work to show that non-competes have a measurable, negative effect on wages, as one would expect from a practice that limits employee mobility. The report also provides evidence that non-competes can reduce entrepreneurship and innovation.
But Treasury has done more than analyze the problem and presents a menu of steps governments can take to limit non-competes and prevent the worst abuses. They include prohibiting non-competes for low-paid employees or for particular occupations, requiring transparency and disclosure of non-competes in employment contracts and fair consideration like severance pay, or voiding them unless a legitimate business interest can be established.
Wage stagnation results from scores of employer practices and governmental policy decisions, and there is no single silver bullet cure. (Although there are a number of policies that could raise wages.) So each element needs to be identified and addressed, and the White House should be applauded for making this effort, along with its efforts to increase overtime pay coverage, increase paycheck transparency, raise the minimum wage, and prevent misclassification and wage theft.