Welcome to brain Stuff production of iHeart Radio. Pay brain Stuff Lauren bog Obam Here. If you're working for a company that you don't like and decide to go work for its competitor instead, will that first company come after you for switching jobs? That can depend on whether you signed a noncompete agreement. A noncompete agreement is a type of contract that prevents an employee from working for a competitor within months or even years after leaving a particular company.
In other words, non compete clauses are designed to protect an employer against workers taking their talents and trade secrets to the competition. That might make sense for high paid corporate executives, TV anchors or tech workers whose sudden departure
to the competition would pose a real threat. But the wild thing about non compete agreements is that American employers have asked all types of workers at all age levels, design them home health workers, sandwich shop employees, even dog walkers. According to data published in the Journal of Law and Economics, around one in five American workers are bound by a noncompete agreement. For the article this episode is based on
How Stuff Works. Spoke with study co author Evans Starr, an assistant professor of Management and organization at the Robert H. Smith School of Business at the University of Maryland. He said, you'll find noncompete agreements in every corner of the US labor market. They're being signed by interns, minimum wage workers, even volunteers for nonprofits in states like California that won't
even enforce noncompete agreements. According to STARS Research, nearly of the eleven thousand, five hundred and five U S workers that he surveyed have signed a noncompete agreement at some point in their careers, and eight are currently bound by one. That includes one third of workers earning forty dollars a year or less. Another study by the Economic Policy Institute found that tent of employers paying less than thirteen dollars
an hour required their workers to sign noncompete agreements. Of the folks in the top earning tier of their study, those making fifty and above, thirty six point five percent had signed noncompetes. So do noncompete agreements serve a legitimate purpose? The classic argument in favor of noncompete agreements is that they take some of the risk out of hiring and
training new employees. Companies invest time and resources in training their workers, and part of that training includes sharing inside information, maybe even trade secrets, about how the companies do business. Starr said, if the worker is allowed to walk across the street and join a competitor, then that puts the firm at a competitive disadvantage. The company had to create
that information and spend lots of money developing it. Another argue in favor of noncompete clauses is that workers aren't technically forced to sign them. They can be negotiated as part of the overall employment contract. If a worker feels like they're giving up too much by signing an oncompete clause, they can ask for a higher salary or walk away.
In reality, though, very few people are in a position to negotiate, or perhaps they don't consider it a hill worth dying on, and Starr said less than ten percent of workers negotiate over their noncompete agreement. More than five percent of the time, when a worker is presented with
a noncompete agreement, they simply sign it. If you're one of the millions of Americans who have signed noncompete and you might assume that very few of these contracts are ever enforced, companies would only go after the big fish right. A Wall Street Journal analysis found that non compete lawsuits increased by six from two thousand to A star said, there are about a thousand non compete lawsuits a year, and you'll find all sorts of workers that you'd never
expect to be in the legal record. Consider the home health aid who was sued by his Pittsburgh based agency when he tried to leave and work for a rival company. Or the famous case of the janitor who was sued by her billion dollar employer Kushman in Wakefield when she tried to work for arrival cleaning business. Of the company
dropped the case after a public outcry. Relatively few noncompete lawsuits ever go to court, though the very existence of these agreements is usually enough to intimidate workers, whether you're a janitor or a manager, from leaving for a better paid job with the competition. They often use broad language, not just prohibiting employees from going to a competitor, but stipulating that the employee will have to pay the company's
legal fees should the case go to court. Often, threatening letters from a company's lawyers stop employees before a case gets that far, but if it does go to court, judges generally stick to the janitor rule when determining the enforceability of a noncompete agreement. A contract is unenforceable if it's so broad that it prevents a worker from taking
any job with a competitor, including a janitor. A Star argues that noncompete agreements are not only bad for the workers who signed them, but also for the entire US labor market, employers included. He said, Let's say that in a certain market, sector of the workers are bound by noncompete agreement. If you're a firm trying to fill a position, it's going to be really hard to hire an experienced
worker because everybody is bound by noncompete agreements. The Star's research shows that noncompete agreements come up the labor market, driving down wages, slowing the hiring process, and making it less likely for workers not signing a noncompete to receive a job offer. As of right now, various types of noncompete agreements are enforceable in forty states. Only California, North Dakota,
and Oklahoma have outlawed noncompetes for all workers. A handful of other states like Maryland have also banned noncompete agreements for low wage workers, but in early July, President Joe Biden signed an executive order calling on the Federal Trade Commission, or FTC, to ban or limit the use of noncompete agreements in employee contracts. The FTC now has to consider
how aggressively it wants to take this issue on. It could ban non competes from being used in low wage jobs, which some states have done, or it could impose rules to make the process more transparent. For example, lots of workers are asked to sign noncompete agreements on their very first day on the job, when they've already negotiated their pay and benefits. The FTC could require early notice for such agreements. Star believes that in most cases, non competes
aren't necessary at all. If a company really wants to protect its trade secrets, then it can have workers sign non disclosure agreements or n d as. If a business wants to protect its investment in clients, then it can have workers sign and non solicitation agreement, which would forbidden employee from soliciting customers of the business they just left for a certain period of time. Four job sectors that
require months or years of training. There are even contracts that require a worker to pay back a portion of their training costs if they leave within two years. Starr said. The key difference is that all of those other agreements are directly tied to the interest that the business is trying to protect, but unlike noncompete agreements, they don't restrict where workers can go. Today's episode is based on the article non compete agreements target janitors as well as vps,
But why? On how stuff works dot Com written by Dave Rhodes. Brain Stuff is production of iHeart Radio in partnership with how stuff Works dot Com, and it is produced by Tyler Clang. Four more podcasts for my heart Radio, visit the iHeart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.