Noncompete Agreements Threaten Careers and, Ultimately, American Capitalism

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A recent New York Times story points out the damaging consequences that result when workers in broad swaths of the economy are required to sign noncompete agreements as a condition of employment.  Recent studies have found that about one in five U.S. workers are bound by non-compete agreements but only a fraction of of those workers actually have the kind of sensitive business information that the non-compete laws were designed to protect.

Keith Bollinger’s paycheck as a factory manager had shriveled after the 2008 financial crisis, but then he got a chance to pull himself out of recession’s hole. A rival textile company offered him a better job — and a big raise. When he said yes, it set off a three-year legal battle that concluded this past week but wiped out his savings along the way. “I tried to get a better life for my wife and my son, and it backfired,” said Mr. Bollinger, who is 53. “Now I’m in my mid-50s, and I’m ruined.”

Noncompetes have been increasingly embraced by pro-business state lawmakers over the last decade. Here in Texas, big business practically owns the state legislature. So, big business gets whatever it wants -- whether it is good for them or not.  Regional economies are starting to feel a negative impact these agreements can have. By effectively preventing experienced employees in entire sectors – including large sections of the Texas economy (oilfield services for example) from moving from company to company, the use of non-competes is stifling of innovation and making it impossible for any company to hire experienced workers. More and more, experienced workers are being forced to change careers rather than advance in their chosen professions.  This is bad for workers and for companies.

Non-competes are depressing wages in Texas and causing experienced workers to flee the state to states that do not allow non-compete statutes. 

As the NYTimes article notes, the impact on individual employees who inadvertently violate one of these agreements can be devastating.

“Employment lawyers know this, but workers are often astonished to learn that they’ve signed away their right to leave for a competitor....By giving companies huge power to dictate where and for whom their employees can work next, noncompetes take a person’s greatest professional assets – years of hard work and earned skills – and turn them into a liability….Put it all together, and suddenly some of the main avenues for finding a better-paying job – taking a promotion with a competitor, being recruited by an old colleague – are cut off.”

Meanwhile, states like California, which does not permit enforcement of non-competes, continue to lead the business world in innovation. 

If you are about to take a new job, the chances are good that you may be asked to sign a non-compete agreement. Don't do it without serious thought and consultation with an employment lawyer. Failure to take a non-compete agreement seriously could be devastating to your career.