Community / October 14, 2016

Signing Away Your Right to Get a New Job

Amazon does it. So do Jimmy John’s and many other companies. They require new employees to sign noncompete clauses, a practice now being pushed on low-income workers, limiting their freedom in the labor market.

In a recent set of projects, Evan Starr, assistant professor of management and organization at the University of Maryland’s Robert H. Smith School of Business, surveyed some 11,500 workers about their experiences with noncompetes, which companies often hide among routine forms new employees sign during the hiring process.

Here are three findings from Starr’s work, cited in separate reports by the White House and U.S. Treasury Department:

1. Mission creep: Noncompetes are intended to protect intellectual property and proprietary business practices, but the agreements have become common in all sorts of occupations and industries. About one-in-seven workers making $40,000 or less must sign noncompetes, and the rate is similar for those lacking four-year degrees.

In one notorious example, the Jimmy John’s sandwich chain requires its workers to sign away the right to work at any sandwich shop within three miles of any franchise in the chain for a full two years after leaving the company. (Jimmy John’s does not leave the definition of “sandwich” to chance, specifying the rule applies to any place that purveys “submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches.”)

Amazon, meanwhile, makes its workers pledge to not take a job for 18 months after their departure with any company that develops, manufactures, markets or sells any product or service sold on Amazon. That covers quite a few companies. Until the tech website The Verge publicized the practice last year, even Amazon’s hourly warehouse workers, down to temporary holiday workers, had to sign such agreements.

2. Wage suppression: In theory, noncompetes ought to spur investment in job training by companies, since they don’t have to worry about workers walking away. That would also imply that workers get raises as their skills increase. But Starr’s research shows the opposite. States that enforce noncompetes see lower wages over the course of workers’ careers.

3. Lack of transparency: Many workers are blindsided by noncompetes. They aren’t asked to sign them until they’ve accepted a job, at which point their negotiating power is limited.

Companies also withhold information about local laws. Even in states like California, where noncompetes aren’t enforceable, companies ask workers to sign them anyway. The Treasury report calls for transparency, suggesting companies be required to disclose the enforceability of noncompetes. /CS/

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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