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Tag: non-compete agreements

Limiting Non-Compete Agreements is Key to a Just Recovery

Posted on by Najah Farley
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Najah Farley

As tens of millions of workers—more than one-fifth of the U.S. workforce—were losing their jobs at the start of the pandemic, worker advocates sounded another important alarm: In many states, being laid off would not release workers from “non-compete” agreements they had signed with their employers, which would restrict what future job offers they could accept.

The prospect that employers could hamper workers in their return to work by using non-competes seemed like a far-off possibility in March 2020. But now, with many seeking to return to work, the possibility of workers being bound by past non-compete agreements or agreeing to new ones is deeply concerning. Non-competes limit workers’ power and autonomy and exacerbate existing inequities that disproportionately harm workers of color.

What Are Non-Competes?
Non-competes are contracts, signed by employees when they accept a job, that restrict them from taking a job in the same industry for a set period of time after they leave their position. Restrictions may be defined by industry or geography, and some may list specific rival competitor companies that employees are prohibited from joining. Research suggests that nearly one in five U.S. workers is currently bound by a non-compete. The types of workers bound range from chief executive officers to security guards to sandwich makers, as in the infamous Jimmy John’s case that first brought this issue to the fore.

Nearly one in five U.S. workers—from CEOs to security guards to sandwich makers—is currently bound by a non-compete.

Employers usually present non-compete provisions in a “take it or leave it” fashion. They may require workers to sit out of the labor market for a year or even longer. Not surprisingly, non-competes have been shown to depress wages by reducing competition. This is what economists refer to as the problem of monopsony, where employers have greater market power and are able to continue to offer lower wages due to lack of competition.

Non-competes may exacerbate the wage gap that workers of color face.

Push for State Reforms
Many legislatures are successfully taking on the challenge of non-compete reform. New laws have been passed or are advancing in several states. Bills were introduced in West Virginia, Minnesota, Connecticut, Colorado, New York, and Iowa. In New York, Governor Kathy Hochul included a non-compete provision in her budget proposal, and the State Senate also introduced a bill. Both the West Virginia and Iowa bills proposed banning non-competes for workers in low-wage industries.

Many legislatures are successfully taking on the challenge of non-compete reform.

The Minnesota non-compete proposal would limit agreements to an annual salary equal to the median family income and also provide for “garden leave”, i.e., an employer would have to pay 50 percent of the employee’s highest annual base salary during the restricted period. Connecticut’s bill, had it passed, would have set the non-compete threshold close to $100k. Colorado’s bill would be an important improvement of the state’s previous non-compete law. Although many legislative sessions ended without passing the non-compete laws under consideration, the bills in New Jersey, New York, and Colorado are still being considered.

Movement Nationally
President Biden’s initiative to improve competition through his Executive Order on Competition, released on July 9, 2021, has also helped fuel the push for these bills. As a result of this directive, federal agency work in the area has increased.

On March 7th, the Treasury Department, in partnership with the Labor Department, the Justice Department, and the Federal Trade Commission (FTC), released a report on “The State of Labor Market Competition.” The report found that the lack of competition results in wage declines of between 15 and 25 percent. It also highlighted the power differential that exists between companies and workers, based on information asymmetry as well as labor market forces, that leads to employers exerting market power and offering lower wages and worse working conditions. Now that the FTC has a full complement of commissioners, advocates are pushing for the agency to pursue rulemaking in this area. The Open Markets Institute initially submitted a petition to the FTC in 2019, joined by 60 signatory organizations, including NELP.

Coercive waivers, such as non-disclosures, arbitration agreements, and non-competes, work together to reduce worker power.

Where We Go From Here
In the wake of the “Great Resignation,” management-side lawyers have become even more aggressive in their tactics to keep employees bound by these coercive agreements. In a recent blog post on a human resources site, management-side lawyers stated that they have seen an uptick in employers wanting to sue employees because of the talent shortage; they not only want to retain the employees but also prevent them from going elsewhere. Such articles highlight the abusive way in which non-compete agreements are used to block workers from going elsewhere to use their talents and skills.

In the wake of the “Great Resignation,” management-side lawyers have become more aggressive in their tactics to keep employees bound by coercive agreements.

State law advocacy will hopefully help level the playing field for workers seeking to be free from onerous non-compete agreements imposed by their employers, but advocates still have more to do.

While many states are moving in the right direction, federal legislative reform and rulemaking remain crucial.

The Workforce Mobility Act, sponsored by Senators Chris Murphy (D-CT) and Todd Young (R-IN), would eliminate non-competes for the majority of workers, keeping them only for workers involved in the sale of a business. This bipartisan bill would go a long way toward ensuring that workers can chart their own careers; it would take power away from employers that abuse the use of non-competes. A federal bill that bans non-competes for workers could, like Oregon’s non-compete law, have a positive impact on the wages of hourly workers. Now is the time to continue to push for broad non-compete reform, creating the just recovery that workers need.

This blog is a shortened version of one that originally appeared in full at NELP on May 19, 2022. Reprinted with permission.

About the author: Najah Farley is a senior staff attorney at NELP, who focuses on workplace standards and wages.


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Jimmy John’s Fired Workers for Making a â€Disloyal’ Meme. A Court Just Ruled That’s Okay.

Posted on by Bruce Vail
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In a decision emblematic of the new climate of Trumpian governance, a federal appeals court in St. Louis ruled on July 3 that it is acceptable for the boss of a fast-food chain to fire workers for the sin of being “disloyal.”

The U.S. Court of Appeals for the Eighth Circuit reversed a ruling issued by the Obama-era National Labor Relations Board (NLRB) in a case spawned by a labor organizing drive at the Jimmy John’s fast-food chain. The court held that Miklin Enterprises, the owner of Jimmy John’s franchises in Minneapolis, had the right to fire six pro-union advocates because they demonstrated “disloyalty” by distributing flyers in 2011 that implied the company was selling unsafe food contaminated by employees obliged to work while sick with the flu.

The organizers designed and distributed memes that showed images of identical Jimmy John’s sandwiches. One was “made by a healthy Jimmy John’s worker,” the other by a “sick” worker. “Can’t tell the different?” the poster continued. “That’s too bad because Jimmy John’s workers don’t get paid sick days. Shoot, we can’t even call in sick. We hope your immune system is ready because you’re about to take the sandwich test.”

The Minneapolis union campaign, launched by the Industrial Workers of the World (IWW or â€Wobblies’), has been high-profile from the start. First erupting in 2010, the effort quickly developed into an intense legal fight at the NLRB before advancing to the federal courts. It even spilled over into the U.S. Congress in 2014 with the revelation that Jimmy John’s routinely required its low-paid sandwich makers to sign questionable “non-compete agreements.”

Threatened with punitive action by the attorneys general in several states, Jimmy John’s rescinded its non-compete policies in 2016, but not before the company’s reputation had been tarnished.

Like the non-compete agreements, the July 3 court decision is an unwarranted attack on labor rights, says William B. Gould IV, a labor law professor at Stanford University and former chairman of the federal labor board.

“The first thing that strikes you is how archaic this feels,” Gould tells In These Times. “The legal basis is from a case in the 1950s when people had a whole different concept of loyalty owed to their employer.

“In those days,” Gould continues, “the assumption was that loyalty was a two-way street: You were loyal to the company and the company was loyal to you. Now, with Uber and Lyft and the others, companies are even refusing to admit that you are one of their employees, so there isn’t much talk about loyalty owed to the employer anymore.”

The July 3 decision turns on the interpretation of â€loyalty’ articulated in the 1953 Supreme Court case National Labor Relations Board v. Local Union 1229 International Brotherhood of Electrical Workers, known as “Jefferson Standard” for short. Earlier in the process of the more recent NLRB case, the labor agency’s Obama appointees had ruled that the firing of the workers was an illegal violation of their rights to form a union. But the appeals court decision reversed that decision, asserting that the disloyalty displayed by the pamphlets gave the employer the right to fire the workers, Gould explains.

The court stated, “(W)hile an employee’s subjective intent is of course relevant to the disloyalty inquiry—”sharp, public, disparaging attack” suggests an intent to harm the Jefferson Standard principle includes an objective component that focuses, not on the employee’s purpose, but on the means used—whether the disparaging attack was â€reasonably calculated to harm the company’s reputation and reduce its income,’ to such an extent that it was harmful, indefensible disparagement of the employer or its product.”

Erik Forman was fired six years ago for organizing a union at a Jimmy John’s in Minneapolis. He told In These Times, “The big takeaway for me is that this ruling means workers do not have the right to tell the truth about their employer,” he said, adding: “The ruling is incredibly slanted towards the employer. They frame our campaign for sick days as an attack on the employer and turn logic on its head. We told the truth about the risk to the public.”

“Employers’ motivation wasn’t just to stop the sick-day campaign,” Forman continued. “It was to stop our unionization effort.”

According to Gould, “This case comes from the 8th Circuit which is the most conservative in the country. It’s the worst circuit in the country for a labor union, or for labor rights.”

The ultra-conservative nature of the ruling may have the unintended benefit of limiting its applicability to workers other than the Minneapolis Jimmy John’s employees, the former NLRB chairman adds. Other judicial districts may not be eager to follow its lead because many traditionally defer to the NLRB in matters of this kind, he says, and few employers will want to take the legal risk of relying on a circuit court ruling that has not been confirmed by the Supreme Court.

The reversal of the Obama-era NLRB decision mirrors action in Congress, where several measures are under consideration to roll back pro-worker measures adopted by the labor board during Obama’s tenure. This week, the U.S. Senate is considering thenomination of two Trump NLRB appointees, both of whom have been criticized as anti-worker by the AFL-CIO.

Carmen Spell, an NLRB representative at the agency’s Washington, D.C. headquarters, would only comment that “(w)e are considering options at this time” on how the agency will respond to the court ruling.

Jane Hardey, a spokeswoman for Jimmy John’s, declined any comment, asserting that the legal case involved only the Minneapolis franchise owner, and did not involve the sandwich chain company itself. Hardey did not respond to a request from In These Times for a telephone interview with Jimmy John Liautard, the controversial founder of the franchise.

According to the Jimmy John’s web site, the rapidly growing chain currently has 2,701 locations in 48 states. The number of employees is estimated at over 100,000.

“The fact that we were fired over six years ago in retaliation for union organizing should tell everyone that you cannot rely on labor law in this country,” says Forman. “Every single decision can now be appealed up to a Trump Supreme Court. We need to find new ways of building and exercising power on our own.”

This article was originally published at In These Times on July 13, 2017. Reprinted with permission.

About the Author: Bruce Vail is a Baltimore-based freelance writer with decades of experience covering labor and business stories for newspapers, magazines and new media. He was a reporter for Bloomberg BNA’s Daily Labor Report, covering collective bargaining issues in a wide range of industries, and a maritime industry reporter and editor for the Journal of Commerce, serving both in the newspaper’s New York City headquarters and in the Washington, D.C. bureau.


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Jimmy John’s and Non-Competes: An Unclear Path

Posted on by Olivia Nedd
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olivia_headFor many companies, non-compete agreements are used to protect trade secrets, business plans and intellectual property. But why is Jimmy John’s, a sandwich chain, requiring its low wage workers to sign non-compete agreements?

These agreements do not allow employees to work for a competing sandwich shop for a period of two years following their employment at Jimmy John’s.

This prompted lawmakers to investigate the company’s policy that bars their workers from working for its competition. House members Rep. Joseph Crowley and Rep. Linda Sánchez call the practice “a form of intimidation.” Jimmy Johns under Fire for Worker Contracts. Together they have drafted a letter asking the Labor Department and the Federal Trade Commission to investigate the reports. But questions still linger. What does this do to the low wage worker? How are their rights impacted? And what are Non-Compete Agreements anyways?

To begin, a non-compete agreement is a contract between an employee and an employer, where the employee agrees not to enter into competition with the employer after they terminate employment. Non-Compete Agreements: Overview. These were once reserved and considered to be commonplace among certain professions. For instance, think of the workers at Coca-Cola who work closely with the secret recipe. It is understandable that their employees sign non-compete agreements not to work for Pepsi immediately after terminating their employment, due to the possibility they may reveal information that gives the new employer a competitive advantage.

Courts usually disapprove of non-compete agreements as they limit the employees ability to earn a living. This can greatly impact the low wage worker with specific set of skill. The court must balance the need to protect the employer’s legitimate interest with any burden that enforcement of the agreement would place on the employee. Additionally, the Court must determine if the duration and scope of the agreement is reasonable. Remember that Jimmy John’s is asking their employees who terminate their employment to wait two years before seeking new employment.

As this issue progresses it will be important for all those investigating to consider how some states have chosen to approach the topic. California, for example, has forbidden the use of non-compete clauses, providing for a few exceptions (California Non-Compete Site) while other states require that the use of non-competes be reasonable in scope.

It is unclear where this will lead. But it is clear that Jimmy John’s use of the non-compete clause intimidates its low-wage workers and places a restraint on them to find better work.

For more information on non-compete agreements and their impact in the workplace visit: http://www.workplacefairness.org/noncompete

About the Author Olivia Nedd is a legal intern for Workplace Fairness and a student at Howard University School of Law.


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Two Lawyers Explain Why There’s No Legitimate Reason For Most Non-Compete Clauses

Posted on by Marilynn Mika Spencer and Anthony Munter
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We were mad as hell after reading the excellent article on non-compete causes by Danny Westneat of the Seattle Times.

Mr. Westneat described the absurdity and unfairness of employers forcing non-compete agreements on low-wage workers – thus limiting or even eliminating the employees’ future job options –and then going even further and suing those low-wage workers to enforce those provisions.

What made us so mad?

First, knowing how desperately low-wage workers need an income, and need it now. These are not workers with a cushion of savings to tide them over in hard times. For these workers, hard times are all times. They are always there. If a low-wage worker is lucky enough to find a job in this rotten economy, chances are good the worker will sign anything and everything thrust before him. Most employers know this and are quick to take advantage, adding arbitration clauses, privacy waivers, non-compete agreements, and more to the mass of paperwork a job applicant or new hire must sign just to get to the next step.

As a society, we don’t condone a party with great power forcing its will on a party without power. We limit interest on loans and fees, we enact usury laws, we require critical contract language to be highlighted in bold type, we declare certain agreements unenforceable because they violate public policy, and more.

Yet, most states still allow and enforce employee non-competition agreements. When we did a little research on the subject, we found confirmation of the more disturbing trend that we’ve already noticed: increasingly courts and society weigh the social benefit from employers as greater than the social benefit from workers. They use only a shallow rationale to support their pro-employer decisions. This has created an increasing solidification of the role of money in society as the most important consideration.

For example, one article in favor of restricting employee’s future job options began by explaining that the employer makes an investment in training workers, and then jumped to the horrors of losing that investment – as if that loss were worse than losing one’s income, home, and ability to feed the family. The article therefore concluded that only the employer has an interest in protecting its investment and so we should enforce the non-compete.

What are we really talking about with respect to low-wage workers? How much has the employer invested in training? Specialized tools or equipment? How long was the training? A few hours? A few days? Certainly not a few weeks. If an employer pays an employee $10 an hour, how much of an investment has the employer made in this worker? Obviously the employer doesn’t see the worker as valuable enough to pay $13 or $15 an hour. Wouldn’t it be more likely the employee would stay on the job if the employer paid $15, $16 or (gasp!) $17 an hour? The idea that the worker also is investing in his or her own life and career did not merit consideration.

No, the employers who force non-competition agreements on employees are not protecting a meaningful investment. There must be something else.

Although we concentrated our review of non-competes on those provisions that limit future job options, we also found false arguments in the justification employers’ use to impose trade secret agreements on low-wage workers. The employer’s main argument here is that it needs to protect against potential damage from a competitor getting its hands on the employer’s trade secrets. That might be fair, but it has nothing to do with a non-compete. An employer with trade secrets can sue to protect them so they do not need a non-compete clause for that reason.

Even worse in this context we have to ask: How much access to a trade secret does a minimum wage or low-wage worker have?

It doesn’t look like the employer is protecting itself from the competition. Again, something else must be going on.

What is really going on is employers imposing non-competition agreements on low-wage workers to undercut any power the employees have. The employers want to remove perhaps the workers’ only bargaining chip: the right to stop working for an employer when they want. If the employee is not free to withhold his or her labor and not free to quit and work somewhere else, then the employee is wedded to the current employer, like it or not.

This gives the employer inordinate power over any employees. It doesn’t matter how poorly paid the worker is, how unsafe the workplace is, how oppressive management is. The employee is stuck. If the employee wants to pay the rent and feed the kids, the employee has to endure whatever the employer imposes. This utter inequality makes a mockery of the employee’s supposed freedom to contract for his labor. It also reveals the lie inherent in at-will employment. (At-will employment is the legal doctrine found in 49 of the 50 United States that says an employer can fire, or demote an employee whenever it wishes, and an employee can quit whenever she wishes.) This kind of top-heavy control severely hampers the likelihood that the employees will organize into a union, thus completely eliminating any potential to even-out the playing field.

The argument that non-competes should be valid has no balance. The worker being paid (and demonstrably underpaid, considering he can get a higher-paying job somewhere else) must suffer lower than market rate wages because his employer wants to enjoy as much control as possible over his employee’s life.

What does the low-wage worker get? Subsistence, if she is lucky. Who among us hasn’t heard of, or doesn’t know, people working two or even three jobs, just to get by? Can the low-wage worker work toward a better future? Can the low-wage worker learn a skill and outgrow her current job? Can the low-wage worker increase her contributions to society?

As our economy started its decline in 2006 and 2007, the voices against capitalism got louder and gained support. To counter this opposition, those in power argued back that once the economy got better and employers must again compete for labor, then labor would get something out of the deal, too. Yet the economy has been improving, albeit slowly, for a couple years now without the workers “getting something” out of the bargain. At best, they’ve regained just a fraction of what they’ve lost.

We urge you though not to think of this fight as “the other guy’s problem.” Maybe you make a lot more than $15 an hour. Maybe you have a better paying job. Still, what would happen to your marketability in this already-tough labor world if you had to sign one of these non-competition agreements? Do not be pacified just because you may make more than $15 per hour. Once large employers realize they can suppress wages and eliminate dissent through this tool, they will use it on everyone.

The mid-term elections are over, but you still have a voice. Don’t stop using it. People don’t change their views quickly, and we have to be aware of these issues at all times. If this issue makes you mad, watch carefully and write a lot about it. If you think you have a case then talk to a lawyer and find out what your rights are.

The people who want to impose these kinds of conditions on your right to earn a living will not stop. It is up to us to fight to prevent these provisions from taking away our right to compete.

This article originally appeared in Crooks and Liars.com on November 24, 2014. Reprinted with permission. http://crooksandliars.com/2014/11/two-lawyers-explain-why-theres-no.

About the authors Marilynn Mika Spencer of The Spencer Law Firm  is an employment and labor law attorney in San Diego, California.

Anthony Munter of Price Benowitz is a qui tam and whistleblower attorney in Washington , D.C.

 


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