Labor

That Seemingly Harmless Paper You Signed When You Were Hired Can Bite You in the Ass

If we’re going to pretend we operate in a free market, we need to at least give labor a fighting chance of flowing as freely as capital does.

Photo Credit: Bacho/Shutterstock

I showed up to work early on the morning of September 24 in order to squeeze in a round of calls before jury deliberations continued in the law firm fraud trial I was covering. Five hours later, I was packing up the desk I had only just moved into. I was fired after just weeks on the job because of a piece of paper I had blindly signed two years before.

The entire experience, which was covered earlier this month by the Wall Street Journal, was awful, embarrassing and financially stressful. But it’s also been incredibly illuminating.

After working at a subscription-based legal news site for two years, I took what I thought was the next logical step in my career: a reporting job at an international newswire. During my exit interview, I was reminded I had signed a non-compete agreement on my first day in 2013. I hadn’t been given a copy, so I had forgotten all about it in the interim. But knowing that many other reporters had gone on to work for various competitors, I didn’t think much of it. It never crossed my mind that my former employer would come after my new job once I was gone.

Once my story became public, I came across a slew of comments and tweets from people who saw my story as a simple case of someone who 1) failed to read the terms of a contract; and then 2) complained after suffering the consequences of breaking it. And I get that. I could have done a better job informing myself when I first took that job in 2013. But the thing is, understanding the agreement wouldn’t necessarily have helped me. Like most junior employees, my bargaining power at that moment was about zero.  

Florida attorney Jonathan Pollard has litigated dozens of non-compete cases since opening up his own firm in 2012. He says many of the agreements he sees, like the non-compete for a parking lot attendant, are “absurd.”

“I routinely see companies using non-compete agreements for low-level employees where there is absolutely no legitimate business interest, no risk of unfair competition and no good faith explanations,” he told me via email.

On their face, non-compete agreements exist to protect companies from poaching, the loss of valuable trade secrets and unfair competition. There’s a strong argument to be made for their use when it comes to executives, or engineers with access to critical and sensitive technology. It’s problematic when businesses use them to repress wages and keep their employees from working elsewhere.

Pollard attributes the rapid spread of non-competes in all types of workplaces to the increase in legal advice doled out over the Internet. The growth in risk management culture has likely also played a large role.

“Business owners or their lawyers read about non-compete agreements and say, Hey, that’s another layer of protection. We’d better get everyone in our company to sign one of these," Pollard said. “The vast majority of these people have no understanding of the legal basics. They think a non-compete agreement is just another contract. It’s not.”

Unlike traditional non-compete agreements, the new brand of mass-market non-compete contract is unnecessarily broad, overly harsh and targeted at those employees who are least likely to be able to fight back, whether in negotiations or in court.

Over the last few years, examples of outrageous non-compete agreements for low-income employees have trickled in at a slow but steady pace.

In the summer of 2014, the New York Times reported that camp counselors, hair stylists and entry-level social media marketers have all been subject to these contracts. Sandwich chain Jimmy John’s made headlines later that year when the Huffington Post revealed that its sandwich makers and delivery drivers are asked to sign non-competes barring them from working at any business making more than 10 percent of its revenue from sandwiches and located within three miles of any Jimmy John’s location. Shortly thereafter, HuffPo reported that employees at doggy daycare franchise Camp Bow Wow had been asked to sign two-year non-compete agreements barring them from working at any “competitive business” within 25 miles.

Seasonal workers in Amazon’s massive warehouses have also been asked to sign agreements barring them from working at any company that sells, markets or manufactures any product or service that competes with any “product or service sold, offered or otherwise provided by Amazon” for a period of 18 months. Given the myriad things Amazon sells, that’s practically half the retail economy.

Each time one of these stories, including mine, is published, we hear the same cautionary refrain from many lawyers and other commentators: “Make sure you read everything before you sign it. If you don’t like the agreement, consult a lawyer or just don’t take the job.” The corollary: “Most of these agreements aren’t enforceable in court.” All of these things are true, but they entirely miss the point.

Legal experts have spent far too much time debating the enforceability of non-compete contracts, a line of questioning that inherently favors employers because it places the burden on individual employees to challenge their bosses in court. Jonathan Pollard estimates that only about 10-15 percent of the agreements he comes across in his practice are enforceable. But that doesn’t stop the rest from causing damage.

Employees don’t actually need to be sued by their ex-employers for non-competes to work their magic, according to a 2012 paper published in Innovation Policy and the Economy by MIT business school professor Matthew Marx.

In the survey data Marx used to conduct his review of non-competes, people who signed non-competes were far more likely to change careers when they changed jobs. Those who took a “career detour” reported lower pay, atrophy of their skills and estrangement from their professional networks, according to the paper.

None of these interviewees were actually sued by their ex-employers, Marx notes, but the threat of litigation was so chilling they were forced out of their industries. In other words, it doesn’t matter that a judge might have ultimately ruled in their favor if these cases were never brought to court.

I couldn’t reach Marx for comment on how things may have changed since those findings were published, but it’s very likely they haven’t gotten better for low-level employees.  

Since getting fired, I’ve spoken with doctors, hair stylists, Pilates instructors, tech workers and other journalists who’ve all either been threatened or constrained by an overly broad non-compete agreement. But none of them have been willing to go on the record. The same factors preventing people from litigating or pushing back against threatening employers—the need for financial stability and/or lack of resources—also keep them from speaking up in the press. Researchers in this field can rattle off the specific names of employees who have suffered non-compete horror stories because there just aren’t many stories out there.

Substantive data concerning the use of non-competes in the United States is also incredibly hard to come by. Evan Starr, assistant professor at the University of Maryland’s Robert H. Smith School of Business, is one of the few academics on the hunt for more. Starr says that the non-compete debate is stagnating in part because we just don’t know how frequently people sign these agreements.

Along with co-authors Norman Bishara and JJ Prescott of the University of Michigan, Starr preliminarily estimates that between 12 and 50 percent of U.S. workers are under non-compete agreements. Part of the reason that estimate is so broad is because many low-income workers polled in Starr’s survey didn’t know whether or not they had signed one.

Even in states like California, where non-competes are banned, employees are asked to sign them. In fact, according to Starr and his colleagues, California still has a marginally higher rate of non-compete agreements, suggesting other motivations are at play.

“If you look at all the empirical scholarship on all this, all of it is studying variation in enforceability,” Starr said on a recent phone call. “That misses the whole fact that in California and in other places, signing non-competes still has important impacts, regardless of whether they’re enforceable.”

That’s not to say legislation is useless. Non-competes are a systemic problem, and they need to be addressed with policy, not appeals to individual grit or gumption.

Colorado and Oregon also ban non-competes, and efforts are underway in Washington and Utah to get similar measures on the books.

Last summer, senators Chris Murphy (D-Conn.) and Al Franken (D-Minn.) introduced the Mobility and Opportunity for Vulnerable Employees (MOVE) Act, which would ban non-compete agreements for employees making less than $15 per hour, or the minimum wage, depending on which is higher. Unfortunately, no measurable progress has been made on the bill since then. When I reached out for comment, a spokeswoman for Sen. Murphy said the MOVE Act has been stuck in committee because “Republicans haven’t made aiding low-wage workers a priority this congress.”

“Murphy feels very strongly that workers who make $15 an hour or less should be able to use their skills to work their way up to better-paying jobs, and he’ll continue to advocate for the bill,” she said.

It may also be that public pressure simply hasn’t become great enough for the legislature to care. In any case, a bill protecting employees making $15 per hour or less should only be the start. It’s not as if people making $20 per hour are able to foot the bill of a $50,000 lawsuit against their ex-employer.

In my case, the New York Attorney General’s office is investigating whether my former employer violated state labor laws when it attempted to enforce the non-compete against me. It remains to be seen whether that investigation will go anywhere, or whether the threat of regulatory action has a chilling effect on other employers looking to impose similar agreements.

We could do with more research by academics like Starr and Marx to even know what we’re up against, but one thing is clear: the onus can’t be on individuals to fight back alone. You shouldn’t need a lawyer to change jobs.

“If you took every single document that you sign at the workplace and have a lawyer review it, our system would break down,” Joe Ahmad, a partner at a Houston law firm, told me over the phone. Ahmad has been practicing for over 25 years but says he only started seeing non-competes pop up for junior employees in the last five to 10. Executives have lawyers, they get severance and they have negotiating power. Sandwich makers, journalists and Pilates instructors typically don’t.

Ahmad, who represents executives and employers who’ve recently hired employees with non-competes, said he sees people “all the time” who “have no business having a non-compete.” Most people who come to see him are looking for legal advice because something has already gone wrong.

“I thought we wanted people to work,” Ahmad told me. “I thought the whole point of our society is we didn’t want people to go home and sit and do nothing. But now we’re telling them they have to wait to find a job with an employer who doesn’t have these agreements.”

And that’s just it: if we’re going to pretend we operate in a free market, we need to at least give labor a fighting chance of flowing as freely as capital does. This is one area where we can make a change.

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