Worker Noncompete Agreements Tamp Down on Wages

Anyone who’s been paying attention understands that while there is no shortage of jobs, there is a shortage of good-paying jobs. And part of the reason for that is because at least 36 million workers are required to enter into noncompete agreements as part of their jobs, stifling their ability to earn more.

As detailed in a new report by the Economic Policy Institute (EPI), nearly 28 percent of private sector workers are currently forced to sign such agreements, confirming a substantial rise in the use of noncompetes compared to a similar EPI survey conducted in 2014, when only 18.1 percent were.

“Noncompetes limit competition among businesses and stifle workers’ wage growth – given that changing jobs in where workers often get a raise,” said report co-author Alexander J.S. Colvin of Cornell University. “These restrictive agreements are not only inflicted upon high-wage workers, but also low-wage workers living paycheck-to-paycheck.”

The new EPI document is an in-depth look at the wide-ranging use of noncompete agreements, which are employment provisions that ban workers at one company from working for or starting a competing business within a set period time after leaving a job.

While the use of such agreements is more prevalent in high-paying jobs, some 29 percent of responding establishments with an average hourly wage of less than $13 require noncompetes for all of their workers.

While noncompetes are used nationwide, the report found that 40 percent of businesses in the 12 largest states have at least some workers covered under the agreements. It is led by California, where 45.1 percent of establishments use them even though they are unenforceable under state law.

Additionally, almost 54 percent of responding employers that have mandatory arbitration procedures, which bar employees from going to court to resolve workplace disputes, also require at least some of their workers to sign noncompetes.

“Noncompetes are part of a disturbing trend of employers requiring workers to sign away their rights,” Heidi Shierholz, a co-author and EPI’s policy director, said. “As employers increasingly use restrictive contracts like noncompetes and mandatory arbitration to undermine workers’ rights, there is an urgent need for stronger worker protections, including prohibiting noncompete agreements.”

The report recommends several policy solutions that would prohibit noncompete agreements, including federal and state legislation as well as regulatory changes made by the Federal Trade Commission (FTC). Congress is currently considering the bipartisan Workforce Mobility Act of 2019 while the FTC is reviewing a petition seeking a rule to prohibit noncompete agreements.