Pearls of Wisdom: Business Friendly Policy? Not So Much


Pearls of Wisdom: Business Friendly Policy? Not So Much

Many businesses require employees to agree to non-compete agreements -- meaning making the employee agree not to work for any competitor after leaving. There are a few instances in which this is reasonable. For the most part though, it is a way for employers to take leverage for bargaining away from employees.

A non-compete agreement makes sense in a situation where the employee has the potential and is likely to directly take business away from their employer in the future. Let’s say that a long term, successful hairdresser says that he is retiring and selling his business to a young upcoming hairdresser. The young hairdresser would most surely have a clause in their agreement specifying that in exchange for a payment, that the old hairdresser would indeed stop working as a hairdresser -- in some sense, all that the hairdresser is selling is the ability for the young hairdresser to take over the steady clients. That seems reasonable.

On the other hand, say the hairdresser has an assistant who answers the phone and takes messages, mops the floor, cleans the windows, and makes the coffee. Say further that the day after the assistant was hired, in the middle of signing up for health insurance and filing in the tax forms, there was an agreement that this person would not answer phones, mop floors, clean windows, or make coffee for anyone else for two years after quitting or being fired from the hairdresser. This is significantly less reasonable.

The deeper problem is present even if the assistant has no intention of leaving. The assistant is not able to negotiate for higher wages or a better job without the ability to at least potentially get a job somewhere else. And that assistant has no ability to become an entrepreneur, to start a business washing everyone’s windows, or delivering coffee and snacks.

Low-wage workers are often the targets of these types of unreasonable non-compete agreements. The sandwich chain Jimmy John’s had a two year non-compete requirement for all employees. In reaction to this Illinois passed the Freedom-to-Work act, making non-compete agreements unenforceable against employees who earned less than $13 per hour. (This is not to be confused with the Orwellian named “Right to Work” laws which give companies the right to prevent their employees from having union representation).

California is a great example of the benefits of banning non-compete agreements. Every young brilliant engineer who has dreams of starting a company someday or starting a new business in a field remotely related to any previous job is told to work in California. This is why most people who are trying to build a company that will need a lot of highly skilled technology people move to California.

Actual business people and job creators are creating the most jobs in the places that do not have this “business friendly” policy. Non-compete agreements are bad for workers and bad for states trying to attract new business. Other states should follow Illinois' example and ban this business UNfriendly policy.

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