RELEASE: New CAP Report Highlights How States Can Support Competition and Boost Worker Pay by Limiting Noncompete and No-Poaching Clauses

Washington, D.C. — Noncompete clauses and no-poaching agreements have typically been associated with top-level talent in the corporate world, but there is growing evidence that across industries of all types—from fast-food to check cashing to information service providers—corporations are requiring employees to sign agreements pledging not to join rival firms and even mandating no-poaching agreements between firms. For instance, nearly 40 percent of workers report having signed a noncompete at some point in their career, and in 2016, half of franchisors required franchisees to sign no-poaching agreements that prevented their workers from moving between locations. As a result, many workers can find themselves unfairly stuck in jobs they do not want but cannot leave, even if comparable, higher-paying roles are available. A new report from the Center for American Progress highlights how states can support competition and boost worker pay and freedom by limiting these abusive noncompete clauses and no-poaching agreements.

“Americans should be free to advance in their careers and move to jobs with companies that pay them fair wages. Yet there is increasing evidence that workers across the education and income spectrum are stuck in jobs they don’t want due to noncompetes and no-poaching agreements. Moreover, these sorts of restrictive agreements contribute to larger negative trends that are depressing the wages of American workers despite low unemployment rates and increasing economic growth. State policymakers can help ensure that workers have the power to negotiate for higher pay, move on to better jobs, and even start new businesses by protecting everyday Americans from abusive noncompete and no-poach agreements,” said Karla Walter, CAP director of Employment Policy and author of the report.

CAP’s report asserts that states have the power to protect workers from these agreements and that reversing this practice should be a priority for policymakers who want to support working families. CAP outlines three primary ways that states can support competition and boost worker pay:

  • Ban noncompete contracts for most workers. States should limit noncompete contracts to the small portion of workers with the power to bargain over these agreements. In order to protect low- and middle-wage workers, states should ban these types of contracts for all workers earning less than 200 percent of the state’s median annual wage. In addition, lawmakers should prohibit companies that employ at least 50 workers from requiring more than 5 percent of their workforce to sign such a document.
  • Ban franchise no-poaching agreements. States should ban all no-poaching agreements among franchises. While several state attorneys general, under the authority of existing state antitrust laws, are taking action against fast-food corporations and other corporate franchisors that require franchisees to sign no-poaching agreements, clarifying legislation would help to ensure that courts do not rule against workers in the future and that corporations understand that no-poaching agreements are banned in all forms.
  • Give workers and enforcement agencies tools to enforce their rights. States should empower workers to stand up for themselves and should bolster enforcement agencies’ ability to protect workers by requiring companies to disclose all noncompete requirements in job postings and job offers; establishing significant penalties for use of illegal noncompete and no-poaching agreements; designating and funding enforcement agencies to pursue these sorts of cases; and allowing workers to sue companies that violate their rights.

Aided by the November election, which installed several new progressive governors and lawmakers, there is growing momentum for action at the state level to address noncompete clauses and no-poaching agreements. State lawmakers in New York and Maine have indicated that they plan to reintroduce legislation to protect workers from these sorts of restrictive agreements in upcoming legislative sessions.

“I applaud the Center for American Progress (CAP) for their report on the impact of non-compete agreements and non-poaching agreements on the American worker,” said Assemblyman Jeffrey Dinowitz (D-Bronx). “For a number of years now I have introduced legislation aimed at prohibiting these types of restrictive provisions in employment contracts. The argument that non-compete clauses spur innovation is a cheap argument aimed at disguising their true intent; putting the interest of corporations and businesses ahead of their workers. While there is a time and place for protecting trade secrets and proprietary information, your average sandwich maker or store clerk shouldn’t be hindered from bettering their careers. These types of provisions prove time and time again to result in less upward mobility and lower wages for most workers subjected to them. I will continue to work with the incoming Attorney General for New York, Tish James, on this issue until workers are given the rights they deserve.”

“My Bill, An Act to Promote Keeping Workers in Maine, will curb the misuse of non-compete agreements, which depress wages and limit economic mobility. These restrictive covenants create an imbalance in the workplace, especially when you consider the lack of bargaining power of low-wage and entry-level workers in the marketplace,” said Maine state Rep. John Schneck (House District 126, Bangor).

Click here to read “The Freedom to Leave: Curbing Noncompete Agreements to Protect Workers and Support Entrepreneurship” by Karla Walter.

For more information or to speak with an expert, contact Allison Preiss at apreiss@americanprogress.org or 202.478.6331.