Should low-wage workers have to sign non-compete agreements?
When Port St. Lucie, Florida, resident Marcella Oliveri was let go from her $11-an-hour job at a medical supply distributor, she was told not to bother seeking another job in customer service.
"I didn't know I had signed a non-compete for a customer-service job, I'm not designing an inaugural dress for God's sake," Oliveri told CBS MoneyWatch. "They said, 'don't forget, you signed a non-compete, you can't work, nobody will hire you'."
The warning proved to be accurate, as Oliveri found out when she was rejected after applying for customer service jobs elsewhere once background checks were conducted. "These are $9-to-$11-an-hour jobs," she said.
Oliveri then sought work as a substance abuse counselor, drawing on her prior experience as a case manager and counselor at one of the community-based organizations that came into existence after then-Governor Jeb Bush led an effort to privatize Florida's state-run agencies. She found a non-compete agreement among the application papers.
"I refused and they passed me over. I was in HR for two-and-a-half hours. They wanted me to sign first, and go over the paperwork with me later," Oliveri said. "I didn't want to sign away my rights."
Even though Oliveri wanted to continue to work, she instead opted to retire in 2014, and now at 62 lives off her pension from her years working as a probation officer in Suffolk County, New York.
"I'm not rich by any means, it was too early for me," said Oliveri. "At least my case manager training went to something good," she added, referring to her ability to help her son and his husband go through the process of adopting sons.
Florida, a right-to-work state where employees can be fired without cause, is "the strongest enforcer" of non-competes -- contracts that ban workers from working for a competitor for a period of time after leaving a job, according to Evan Starr, an economist and assistant professor at the University of Maryland's Robert H. Smith School of Business.
While the sunshine state aggressively holds signers of the agreements to them, California is at the other end of the spectrum in that it has a policy of actively not enforcing the contracts. The rest of the country falls somewhere in between.
"Most states have a sense of moderate enforcement, and then some are more aggressive, like Florida," said Norman Bishara, an associate professor of business law and ethics at the University of Michigan's Ross School of Business. "It's a percolating issue."
One of the findings of his research is that non-compete agreements are just as common in California as they are in Florida, Starr said. "Firms in California are clearly finding value in using them despite not being enforceable, and that concerns me," he said. "Workers might be making choices to abide by the contracts without knowing they are not enforceable."
Research authored by Starr, Bishara and J.J. Prescott, a law professor at the University of Michigan, found 18 percent, or 30 million, American workers are covered by non-compete agreements.
Non-compete agreements are far more prevalent among senior executives and other higher earners, with about 40 percent of those making more than $100,000 a year signing them, the researchers found.
Still, non-compete clauses also cover about 14 percent of those making less than $40,000, and roughly 15 percent of workers without college degrees are subject to them, Starr, Bishara and Prescott said.
"Low-wage workers are particularly vulnerable, as they are so easily chilled by a threat to their mobility," Starr said. Regardless of whether a contract is enforceable, a low-wage employee is less able to hire a lawyer to fight if an employer threatens a lawsuit, he said. "Empty threats can be powerful."
Efforts to combat the perceived threat were recently in view in New York and Illinois, with the attorney's general in both states taking action against Jimmy John's for having hourly workers -- including sandwich makers and those making deliveries -- sign non-competes.
On June 8, Illinois Attorney General Lisa Madigan filed suit against Jimmy John's, saying it had imposed restrictive agreements on workers "including low-wage sandwich shop employees and delivery drivers whose primary job tasks are to take food orders and make and deliver sandwiches."
"Jimmy John's was unwilling to commit to the transparency necessary to remedy the situation, and that unfortunately led to this lawsuit," said Eileen Boyce, a senior press secretary for Madigan.
The sandwich chain, which has about 2,000 outlets nationwide, on Wednesday reached a deal with New York Attorney General Eric Schneiderman in which the company said it would stop including the agreements in its hiring packets.
Schneiderman reached a similar agreement in the middle of June with Law360, with the legal publisher agreeing to stop using the agreements with its reporters. Schneiderman investigated Law360 after a journalist lost the job she had left Law360 for after the legal newswire informed her new employer she had signed a non-compete stipulating she would not work at a competitor for a year.
In separate statements, Jimmy John's said it was pleased to have reached an agreement with Schneiderman's office and disappointed to learn of Madigan's action. "We made clear to the attorney general that we would never enforce a non-compete against any hourly employee that might have signed one."
Another company, Amazon (AMZN), withdrew its policy of having hourly and seasonal workers sign non-competes last year after drawing negative media attention.
"Like most companies, many of our employees sign non-compete agreements," an Amazon spokesperson emailed. "However, we do not have non-compete agreements for hourly employees," the spokesperson added, confirming that that the clause for hourly workers had been shelved last year.
This year, Hawaii banned non-compete agreements for technology jobs and New Mexico made the same move for work in health care. Oregon recently banned non-compete agreements longer than 18 months, while Utah limited the agreements to one year.
And, federal legislation proposed in 2015 in the Senate by two Democrats, Connecticut's Chris Murphy and Minnestoa's Al Franken, would prohibit non-competes for workers making less than $15 an hour, and would require employers to notify prospective employees they might be asked to sign a non-compete.
Non-compete agreements have also drawn the attention of the White House, which last month released a brief summarizing the issues and moves "to address the potentially high costs of unnecessary non-competes to workers and the economy." While non-competes can be beneficial in limited use, evidence suggests the contracts can also hinder serve to depress wages, limit mobility and inhibit innovation, the brief said.
"You used to see it in high-tech industries with more trade secrets, where there is some logic in enforcing non-competes," said Orly Lobel, a professor at the University of San Diego School of law, whose specialties include employment and intellectual property law. "Now it's spreading down to even temporary and low-skilled workers who are not receiving any training or access to prior information."
Lobel argues that in the long run, non-competes harm industries and businesses, as "the more people are basically untouchable, the more difficult it is to quickly replace, and quickly recruit people."