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Worker Non-Compete Clauses Are Incredibly Common—and Often Make No Sense

By:
Kerry Close
3 min read
Jimmy John's is a company that makes workers sign non-compete agreements. - Gilbert Carrasquillo—Getty Images
Jimmy John's is a company that makes workers sign non-compete agreements. Gilbert Carrasquillo—Getty Images

If you signed a non-compete agreement before you started your job, you're in good--if annoyed--company.

A recent White House report found that 18% of American workers are currently restricted by non-compete clauses. If you've never signed one--or even if you have and had no idea what it was--a non-compete is a legal agreement that prevents an employee from leaving a job at one company and taking a similar one with a competing company, for a specified period of time.

Of the workers who have signed non-competes, fewer than half say they had access to trade secrets that a potential rival company could take advantage of. What's more, 37% of workers say they have signed non-compete agreements at some point in their careers.

While engineering and computer/mathematical occupations have the highest prevalence of non-competes, the agreements aren't exclusive to highly-skilled professions. For instance, 15% of workers without four-year college degrees are subject to non-competes, while 14% of employees earning less than $40,000 a year have signed a non-compete. That's despite the fact that employees in both sectors are about half as likely to possess trade secrets than more highly educated and higher-earning counterparts in the work force.

The driving force behind the popularity of non-compete is likely workers' lack of knowledge about the agreements. A 2012 survey finds that more than 70% of workers were not told about the non-compete clause in their job offers. Instead, they were asked to sign after they had accepted the offer--and potentially turned down other offers. It also found that very few workers ask about the terms of their non-compete or try to negotiate with their prospective employers.

In one of the most puzzling and criticized example of non-competes, fast food sandwich chain Jimmy John's requires workers to promise they won't work for a competitor, defined as a nearby business that derives at least 10% of its revenue from sandwiches, within two years of leaving their job. Specifically citing Jimmy John's, two senators introduced a bill last summer that would prohibit the use of non-compete agreements for employees earning less than $15 an hour, $31,200 a year or the minimum wage in the employee municipality. It would also require employers to tell prospective hires that they may be asked to enter into such an agreement.

Still, there are some sensible explanations for why companies demand employees agree to non-compete clauses. Some research suggests that stronger non-compete enforcement is correlated to more firm-sponsored training. Apparently, firms are more willing to invest in workers when managers believe the employees are unlikely to quit and take their knowledge and experience elsewhere.

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