employee mobilityPush-back by State Attorney Generals and state lawmakers against n0n-compete agreements may mean improved wages for employees.

Specifically, the Wall Street Journal, by Harriet Torry, reported on May 18, 2019, that Resistance to Noncompete Agreements Is a Win for Workers. To support this conclusion, the WSJ article cited various state initiatives, including:

  1. Washington passing a law making noncompetes unenforceable for certain workers, including employees earning less than $100,000 a year;
  2. In 2015, Hawaii banned non-compete agreements for technology jobs. The State reasoned such restrictions discouraged entrepreneurship;
  3. Earlier in 2019, New Hampshire’s Senate passed a bill banning noncompete agreements for low-wage workers;
  4. Legislators in Pennsylvania and Vermont proposed to ban noncompetes with few exceptions; and
  5. Attorneys general in Illinois and New York have successfully challenged noncompete agreements so certain companies agreed to limit their use.

Noncompete Use and Abuse

Traditionally, non-compete restrictions have been the go-to resource from the company toolbox for protecting confidential and trade secret information. But these restrictions are now frequently imposed at all levels within a company (Remember Jimmy Johns’ requiring delivery drivers to sign noncompete restrictions?).

In our own experience, we’ve represented hair-dressers, massage therapists, and others in minimum-wage jobs who were sued over non-compete restrictions. These and similar lawsuits rarely involved the reasonable competitive interest appropriate for protection through non-compete restrictions.

Limiting Competition and Wage Growth

The WSJ article reaches similar conclusions we discussed in a May 4, 2019, post about slow wage growth being caused by non-compete enforcement. See Is Interference from Over Aggressive Noncompete Litigation to Blame for Slow Wage Growth?

And now with historic unemployment lows, non-compete restrictions are increasingly a means to avoid paying employees a higher wage. For example, NPR’s Planet Money recently discussed in the “Quit Threat,” how employees have leverage to negotiate higher wages.

When unemployment is low, workers can threaten to quit and their bosses have to take that threat seriously. That’s what leads to raises.

But that leverage does not exist if the employee can’t work within his or her field. See Running out the Clock in Non-compete Disputes: A Frustrating Reality for Employees. Bolstering this conclusion that post-employment restrictions suppress wages, a study found that after Hawaii enacted its ban employee mobility increased by 11% and wages for new hires increased by 4%.

Scaling Back Noncompete Use

Non-compete and similar post-employment restrictions serve a legitimate purpose in protecting company trade secrets, confidential information, and protecting against unfair competition. But increasingly they are used – either by design or as an unintended consequence – to suppress employee wages. And if employers are not careful about how they used non-compete restrictions more states may follow to limit their use.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.