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Half of U.S. businesses make workers sign noncompete agreements

Half of employers require noncompete agreements

In America, getting a job today increasingly means signing away your job choices later.

Half of U.S. businesses ask at least some of their workers to sign so-called noncompete agreements, which limit where or for whom they can work in the future, according to a study published Tuesday by the Economic Policy Institute, a liberal-leaning think tank. 

Nearly a third of businesses — 31.8% — ask all their workers to sign noncompetes, regardless of their job duties or pay, the study found.

"There's this growing trend of employers demanding that workers sign away their rights if they want to work for a company," said Heidi Shierholz, EPI's policy director and one of the authors of the study.

These restrictive agreements hold down workers' wages and discourage people from starting businesses, according to researchers and worker advocates.

"One of the key ways workers get raises in our economy is they change jobs," Shierholz said. "If you take away that avenue, it hurts wage growth."

While noncompetes are more common for certain jobs — top executives routinely sign these agreements, for instance — they exist in every industry. Nearly one-third of construction companies ask all their workers to sign noncompetes, as do a quarter of retail companies and 14% of companies in the leisure and hospitality industries, EPI found. 

Amazon required its temporary warehouse workers to promise not to "support … any product or service that competes or is intended to compete with any product or service sold, offered, or otherwise provided by Amazon" for 18 months after their employment ends. Cushman & Wakefield last year sued a former janitor for going to work cleaning another company's offices. (Both companies retreated after news accounts emerged of their actions.)

In fact, while noncompetes are more common for higher-paying jobs that demand higher education, the majority of workers subject to these agreements are hourly workers, according to research by Evan Starr, a professor at the University of Maryland and a leading researcher on these agreements. 

Among employers paying an average of $22.50 an hour or more, more than 36% had all their workers sign noncompetes, EPI found. Among those paying $13 an hour or less, 29% did.

Defenders of noncompete agreements argue that companies spend a lot of money to hire and train workers, and that preventing those people from going to a competitor encourages the employer to invest more heavily in training or developing new products and services. But research has shown the opposite: Workers subject to these restrictions tend to stay in jobs longer, but also earn less  than their unencumbered colleagues. 

So why are these worker restrictions so common? One school of thought says companies impose conditions because they can.

"The thing that blows your mind is how common [these agreements] are in low-wage workplaces," Shierholz said. "That underscores that it's not really about protecting trade secrets," but about employers wanting to exert their power, to workers' detriment, she said.

Boosting that theory is the fact that about a third to half of noncompetes are sprung on workers, Starr told Congress last month.

These "workers learn about noncompetes after they've accepted the job and often on the first day of work," he said. "At that point, you don't have any bargaining power, you're accepted the job and turned down other offers." That's likely a reason why nearly 90% of workers who sign noncompetes say they attempted to negotiate it in any way, according to another study.

Banned in some states

Some states have moved to restrict noncompete agreements — and have seen pay increase as a result. After the state of Oregon banned the use of noncompete agreements for hourly workers in 2008, average wages for all workers rose 3%, according to research. Hawaii's ban on noncompetes for high-tech workers led to an average 4% wage increase for all new hires.

Because only a subset of workers are subject to these restrictions, these figures suggest that the impact of a noncompete on an individual worker is much higher — to the tune of a 14% to 21% raise, according to Starr.

The FTC is currently reviewing a petition to ban noncompete agreements, and a bill that would do the same has been introduced in the Senate.

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