Obama urges states to nix non-compete agreements – does this make the rich richer?

A third of the workforce

In the waning days of the Obama administration, the President is attempting to influence employers to drop their reliance on non-compete agreements, which currently affect approximately one-third of companies and 20 percent of the workforce in the United States.

“(Workers) can’t reach their true potential without freedom to negotiate for a higher wage with a new company, or to find another job after they’ve been laid off,” Vice President Joe Biden said, speaking on the matter earlier this year. Non-compete clauses effectively prohibit employees from working for employers in the same or similar fields for a set length of time after they leave their job. These clauses are alleged to disproportionately affect employees who make lower salaries, with 14 percent earning less than $40,000 per year.

A common dispute

Common in most states, non-compete agreements are frequently the subject of court battles over their validity and enforceability.

Courts are generally asked to rule on length of time that the agreements span, their geographic impact, and the access employees had to protected trade secrets.

These are not limited to specialized or technologically-based fields, either. Sandwich maker Jimmy John’s agreed to drop non-compete clauses they had with employees at franchises in the state of New York this summer. Affected employees signed agreements prohibiting them from working for direct competitors. It also prohibited former employees from working in any company that makes more than 10 percent of its revenue from sandwiches within two miles of a Jimmy John’s store for two years after their last day of work.

Effect on the common man

Jimmy John’s felt their employee training was so incredibly valuable and revolutionary that they would not only prohibit former employees from taking their talents to a Subway or other direct competitor, but also a bodega or gas station with a small side business making sandwiches. For two years. Two years.

“Non-compete agreements for low-wage workers are unconscionable,” Eric Schneiderman, New York’s attorney general, said at the conclusion of the case. “They limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued. Companies should stop using these agreements for minimum wage employees.”

Making these types of agreements standard for employees limit their options both now and in the future. A pernicious cycle of lower job mobility and ability to test the free market to improve salaries is created, thereby enriching the company without providing similar value to the employee.

The other side

Not everyone holds to President Obama’s position that non-compete clauses are bad, however. “In states with poorly educated workers who have little or no employment history, non-compete agreements give employers incentives to hire and train unskilled workers, free from the worry that a nearby competitor will swoop in and hire away the best workers shortly after they’ve received the valuable training and work habits provided by their original employer,” writes Jonathan Macey in Fortune. “Hiring unskilled workers without non-compete agreements turns employers who do provide valuable training into suckers.”

Employees should have the ability to test the market for their skills and wages in much the same fashion customers of those companies test the market for quality and price, going to a competitor for their services when a better value is perceived or realized. Training employees to do a job well does not make your company a “sucker”, as Mr. Macey asserts. It makes you responsible to your customer to provide a workforce competent to meet their needs.

The importance of quality training

High quality training programs are vital in any age, but especially in one in which customers have grown to expect courteous, error-free service at each engagement. Coupled with the ability to provide instant feedback to millions when those expectations aren’t met, training’s importance increases.

What’s the payoff for having a rigorous culture of staff development and employee learning regardless of the skill level of the position?

Enhanced employee satisfaction and a satisfied customer base, every time.

The final word

Tying low-salary, low-skill, and low-technological positions to modern-day serfdom, employers show lack of confidence in their own ability to properly incentivize roles their customers face.

Employers demonstrate an unwillingness to innovate ways to staff roles that meet the needs of the market, the employee, and the company.

Instead of operating from a position of fear for these types of positions, create a workplace, culture, and rewards system that dares competitors to attempt to steal your staff away and makes your employees foolhardy to do so.

#NonCompete