Policy makers have now started to wrestle with these restrictions. In July, Massachusetts Attorney General Maura Healey and attorneys general from 10 other states requested information from eight fast-food chains about their use of no-poaching agreements, in which franchise owners agree not to hire workers from other locations within the same franchise. The attorneys general offices are currently reviewing the responses. The attorneys general are currently reviewing the responses. Separately, Washington state Attorney General Bob Ferguson reached legally binding agreements to stop including no-poach agreements in contracts with 30 franchises since July.
The U.S. Department of Justice reached a settlement with Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (Wabtec) in July over their use of no-poaching agreements between rail equipment suppliers. The settlement required the companies to end no-poach agreements that the department said “restricted competition for U.S. rail industry workers, which limited their access to better job opportunities, restricted their mobility, and deprived them of competitively significant information.”
Wabtec issued a statement saying the company “firmly believe(s) that our recruiting policies have been consistent with the antitrust laws and have in no way diminished competition for talent in the marketplace,” but the companies settled to avoid litigation.
Noncompete clauses that restrict workers from taking a job at a competitor immediately after leaving a job have proven more difficult to rein in. California, North Dakota and Oklahoma won’t enforce noncompete clauses, but they still show up in contracts, according to researchers like Matt Marx, an associate professor at the Boston University Questrom School of Business, potentially discouraging workers who aren’t aware of their rights.
In many other places, the situation remains murky.
Niki Cannady, 42, has worked as a health care aide since 1997 around Durham, North Carolina, and said she has only recently seen noncompete clauses in contracts for health care agencies. “I’m old school,” Cannady said, “so when I saw this and started asking other people if they’ve seen it in their contracts, I thought ‘oh my gosh, this is something new.’” Noncompete clauses have become common in the health care field, where employees often develop personal relationships with clients that employers argue could give competitors an unfair advantage when the worker changes jobs.
Cannady signed a noncompete clause in 2016 to work for health care staffing agency Allcare Home Health. Cannady had developed a strong relationship with a client that existed before her time at Allcare, so when the client planned to switch agencies in the spring of 2017, the client asked Cannady to switch as well and keep working with them in their home. Cannady remembers being told “if I go work for that client, they could sue me for $4,000.” Allcare did not respond to requests for comment.
The client wrote a letter of support to Allcare and the company eventually backed off, allowing Cannady to switch agencies. But she has been wary of agreements like this since.
In 2016, the U.S. Department of the Treasury and the White House issued complementary reports on such contracts that found approximately one in five American workers have signed a noncompete agreement.
According to the Treasury report, noncompete clauses “can protect trade secrets, reduce labor turnover, impose costs on competing firms, and improve employer leverage in future negotiations with workers.” But the report indicated that some practices, like noncompete clauses in contracts for low-wage workers without access to trade secrets, or noncompete clauses workers aren’t aware of when signing a contract, are detrimental. “When workers are legally prevented from accepting competitors’ offers, those workers have less leverage in wage negotiations and fewer opportunities to develop their careers outside of their current firm,” the Treasury report explains.
Based on these findings, the Obama administration issued a call to action later that year, encouraging states to curb abuse of noncompete clauses by passing legislation to ban them for certain classes of workers, such as those under a wage threshold; require more transparency around their use or reform the way courts interpret overly broad contracts.
But only two states, Illinois in 2016 and Massachusetts in 2018, have taken action. Legislation has been introduced since 2017 to ban or reform noncompete clauses at the federal level and in nine states — Hawaii, Maine, Maryland, New Hampshire, New Jersey, Pennsylvania, Vermont, Washington and Massachusetts — and New York City.
Massachusetts included noncompete reform as part of an economic development package signed by Gov. Charlie Baker on August 10. The new policy bans noncompete clauses for hourly workers and establishes restrictions, including a stipulation that noncompete clauses must be presented before an employee's first day on the job and can’t cover more than a year after employment.
Getting there took almost 10 years of work in the Massachusetts statehouse.
Initial proposals were based at least in part on a comparison between Massachusetts and California. Both have strong technology sectors, but many economists say California’s policy of not enforcing noncompete clauses contributed to the rise of Silicon Valley as the center of the technology world by allowing for a free flow of talent. Attempts at noncompete reform in the Bay State started in 2009, with proposals from Rep. Lori Erlich and Will Brownsberger, at the time a Massachusetts house rep and now a state senator, that went so far as to ban enforcement of noncompete clauses altogether.
But trade groups like the Associated Industries of Massachusetts (AIM), the International Franchise Association, and large employers like MassMutual and Verizon vigorously lobbied against more broad bans on noncompete clauses. They backed noncompete as a way to protect trade secrets and ensure companies will invest in the Massachusetts workforce.
What ultimately emerged doesn’t go as far as banning the agreements in Massachusetts, as some have called for, said Erik Winton, an attorney specializing in employment law at Jackson Lewis P.C. — but instead represents a compromise that bans noncompetes for employees that are nonexempt under the Fair Labor Standards Act, students working part time, or workers under the age of 18. The new law allows noncompete agreements for other workers as long as they are limited to 12 months after employment, reasonable in scope and necessary to protect legitimate business interests.
Legislation banning noncompete clauses for workers making under $15 an hour passed the Maryland House of Representatives in 2017 with bipartisan support, but momentum faded in the state Senate when Republican sponsor John Astle withdrew from sponsorship. The Allegis Group, a Maryland based staffing company, the Maryland Association of CPAs, Maryland Chamber of Commerce and the Maryland Association for Commercial Real Estate had previously written to lawmakers urging them not to pass a 2015 bill banning noncompetes altogether.
“Allegis Group has spent significant funds to develop proprietary and confidential information, processes and systems, which it provides to its employees so they can perform their work and be successful,” the company said in a statement, arguing that “this noncompete not only protects the company and its investment in the former employee, it protects the former employee’s co-workers who would otherwise be harmed by the former employee engaging in unfair competition.”
The Maryland Chamber of Commerce wrote that “there already exist well established standards by which courts balance the interests of employee mobility and fair competition with the interests of permitting employers to protect intellectual property and customer goodwill.”
Republican Delegate Kevin Hornberger, who co-sponsored the 2015 and 2017 measure, said he is working with Democrat Alfred Carr to introduce legislation again.
Hornberger heard from constituents who supported the effort, including a dog trainer making $25,000 a year who was unable to accept a higher paying management position due to a noncompete clause prohibiting her from working for a similar company within a 50-mile radius for 2 years.
“This isn’t a population that has access to deft legal advice,” Hornberger said. “The vast majority of these folks are working 2-3 jobs trying to survive.”
Other government bodies have introduced legislation more recently and have gotten less traction, including the New York City Council, where Democratic Councilman Rory Lancman introduced a bill last year to regulate the use of noncompete agreements for low-wage workers.
“The fast food industry is well organized and certainly has been animated over the past few years,” over the issue of noncompete and no-poaching agreements, Lancman said. His bill has yet to pass the Committee on Civil Service and Labor, but he says he isn’t giving up.