Play Live Radio
Next Up:
0:00 0:00
Available On Air Stations
We’re in our Spring Fundraiser and you can help! Support KSMU programming today!

In Tight Labor Market, Blue-Collar Employers Turn To Non-Compete Clauses


The story of the expanding noncompete clause - those are agreements that employers have employees sign to protect intellectual property or talent. They've traditionally been reserved for white-collar professionals. But as the labor market tightens, employers want blue-collar workers to sign them too. Stacey Vanek Smith and Sally Herships explain the trend for The Indicator podcast from Planet Money.

STACEY VANEK SMITH, BYLINE: A noncompete clause is meant to do exactly what its name implies - to prevent employees from engaging in competitive behavior.

SALLY HERSHIPS, BYLINE: Noncompete clauses - they are kind of like corporate prenups. If a relationship ends, they are this legally binding agreement. It has to be adhered to no matter how much you hate each other or you could end up in court.

VANEK SMITH: The labor market right now in the United States is tight. Unemployment is low, and that makes employees in certain industries really valuable. Over the last decade, the number of noncompete lawsuits has almost doubled. Like in the case of a security guard in Florida - he was a single dad, and he got a new job. He'd been on the job for just a couple of weeks, and he couldn't get childcare during his shift, so he quit. And he got another job also in security, and his original employer sued. He was fired from his new job because he had violated this noncompete clause.

HERSHIPS: But these cases - they are expensive. A company suing an employee, even a security guard who's working for a fairly low wage - that kind of case can easily rack up half a million dollars in legal fees.

VANEK SMITH: Taking an employee to court - it is not just about that one employee. Hiring is expensive. You have to advertise. You go through a ton of resumes. You sink a lot of resources into a person when you hire them. So when companies take a worker to court, they're often trying to set an example. It's like a head on a pike.

HERSHIPS: Sarah Hutchins is a lawyer in Charlotte. She handles business litigation with the firm Parker Poe, and she sees noncompete cases all the time.

SARAH HUTCHINS: If you have a noncompete agreement with your employees and it's known that you don't enforce it or enforce it with some sort of regularity, well, you're sending a message to your employees about how seriously you take that.

HERSHIPS: At the same time, Sarah says it can be really difficult to know what happens with a lot of these cases. Because they're so expensive, a lot of them tend to settle before a judge or jury weighs in. And she says geography also plays a role, so there are some states, like California, where noncompetes are rarely upheld, regardless of the type of worker. On the other side, there are states like Florida, which are a lot less sympathetic to workers and more likely to side with the company. And most states - they kind of fall in the middle.

VANEK SMITH: So there is a risk for companies.

HUTCHINS: It could be found unreasonable. And that doesn't just affect that employer's relationship with that employee. That could be cited by other employees when they try to leave - that the agreement that they were asked to sign was unreasonable.

VANEK SMITH: And some states have started pushing back. Courts in New Hampshire, Maryland, Delaware and Rhode Island have started siding with workers and saying these noncompetes the companies are having people sign - they are unreasonable.

Stacey Vanek Smith.

HERSHIPS: Sally Herships.


(SOUNDBITE OF PESHAY'S "PACIFIC") Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.
Sally Herships