Stop exploiting low-paid workers with noncompete agreements

A growing employment practice in Michigan and other states is requiring employees to sign noncompete agreements that prohibit them from obtaining employment at similar businesses, either concurrent with employment at their present job or after leaving their present job.

For some higher-paying professional positions, a noncompete clause can be necessary. Such situations involve employees who have clients or proprietary information that they can take with them to their new place of employment, to the detriment of their former employer.

However, a growing number of workers who are subject to noncompete agreements are lower-paid employees in the restaurant and retail industries, who do not have clients or access to confidential or proprietary information. Their employers require them to sign noncompete agreements for only one reason: to reduce their ability to find a job with better pay or working conditions.

There are a number of reasons why a restaurant employee, for example, might seek work at a different restaurant in the same community. Better pay or tips is one obvious reason. A more predictable schedule, a schedule that better suits family needs, or more scheduled work hours could be another. Another reason could be to escape undesirable work conditions such as sexual harassment, co-worker bullying or less physically arduous job requirements.

Such workers should have the right to seek and find jobs with better pay, benefits or work environments—this is a core American value. Allowing businesses to limit a low-paid worker’s ability to find better work takes away that right. This issue goes far beyond employer-employee relationships, as it’s really about an employer’s right to put conditions on the employment of its former employees and not just its current employees. Allowing businesses to dictate the future work prospects of workers after they have left their employment, for no reason other than to discourage the employees from leaving their jobs, is fundamentally undemocratic and a violation of individual liberties.

A recent report from the Economic Policy Institute cites a study finding that 55% of Michigan employers require at least one employee to sign a noncompete agreement and 38% require all of their employees to sign one. While the share of these employees that earn wages close to the minimum wage is not known, these percentages are among the highest of the larger states and underscore the pervasiveness of this practice.

Fortunately, there has been legislation introduced that will put limits on the use of noncompete agreements. House Bill 4874, introduced by Rep. Mari Manoogian with 32 co-sponsors, would prohibit requiring noncompete agreements for employees earning below 138% of the most recent published federal poverty guidelines for a family of three, which, using the current guidelines, would be $29,435, or $14.15 an hour if the employee worked 40 hours per week, 52 weeks per year. (New guidelines for 2020 will be issued later in January.) The Michigan League for Public Policy has testified in support of this bill. While we believe the earnings threshold ought to be higher than 138% of the poverty line, this is a very good start that protects the lowest-paid workers from being stuck in undesirable jobs and gives them the freedom to seek better work.

Business groups opposing the bill have said that even low-wage workers might have access to proprietary information. It seems unlikely that there are many workers making below 138% of the poverty line that would have access to such meaningful information, and even if there were, businesses could require confidentiality agreements from those workers. And of course, with the salary threshold for protections from noncompete agreements so low, businesses that feel strongly about such agreements could bump their employees’ wages above 138% of the poverty line.

It is important that this bill move out of committee and go further in the legislative process. Although Michigan has a conservative legislative majority that is disinclined to make moves opposed by business groups (although the arguments put forth by those groups are unconvincing), there is bipartisan support for similar proposals on the federal level. Let’s hope our Legislature does the right thing: protects the job prospects of low-paid workers, and sends a bill to Governor Whitmer’s desk.