Labor & Employment Law Daily At least 27.8 percent of private workforce is stuck with noncompete agreements
Thursday, December 12, 2019

At least 27.8 percent of private workforce is stuck with noncompete agreements

By Pamela Wolf, J.D.

An Economic Policy Institute report sets the range at between 27.8 percent and 46.5 percent of private-sector workers.

The Economic Policy Institute says that at least 27.8 percent of the private-sector workforce—at least 36 million workers—are forced to enter noncompete agreements. That estimate confirms the pervasiveness of noncompete agreements. The new report also shows a substantial rise in noncompetes compared with a 2014 survey, which found that 18.1 percent of workers were covered by noncompetes.

The report, authored by Alexander J.S. Colvin from Cornell University and EPI’s Policy Director Heidi Shierholz, uses data from a national survey of private-sector U.S. employers in which 49.4 percent of responding establishments indicated that at least some of their employees were required to enter into a noncompete agreement. Nearly a third (31.8 percent) of responding establishments said that all their employees were required to enter into a noncompete agreement.

Other key findings. The report analyzes noncompetes by establishment size, state, industry, average wage level, and typical education level. The report highlights these other key findings:

  • While the data do not allow a determination of the precise share of workers nationwide who are subject to noncompete agreements, the range is somewhere between 27.8 percent and 46.5 percent of private-sector workers, which means that between 36 million and 60 million private-sector workers are subject to noncompete agreements.
  • While establishments with high pay or high levels of education are generally more likely to use noncompete agreements, noncompetes also are common in workplaces with low pay and where workers have low education credentials.
  • Noncompete agreements are common across the country, including in California despite noncompetes being unenforceable under state law. Even though these agreements would not stand up if challenged in California courts, businesses still can use them to pressure employees into not going to work for competitors.
  • The use of noncompetes is part of a broader trend of employers requiring workers to sign a variety of restrictive contracts as a condition of employment, such as mandatory arbitration agreements. Employers who use mandatory arbitration also are significantly more likely to use noncompetes.

Disturbing trend. The report’s authors see the rise of noncompetes as a disturbing trend. “Noncompetes limit competition among businesses and stifle workers’ wage growth—given that changing jobs is where workers often get a raise,” Colvin said. “These restrictive agreements are not only inflicted upon high-wage workers, but also low-wage workers living paycheck-to-paycheck. The rise of noncompetes is likely an important contributor to stagnant wages and declining job mobility in the United States in recent years.”

“Given the ubiquity of noncompetes, the real harm they inflict on workers and competition, and the fact that they are part of a growing trend of employers requiring their workers to sign away their rights as a condition of employment, noncompetes can and should be prohibited either through legislation or through regulation,” the report states.

Policy solutions. Colvin and Shierholz recommend a variety of policy solutions to prohibit noncompete agreements, including federal and state legislation and regulation from the Federal Trade Commission (FTC). The authors also noted that Congress is currently considering bipartisan legislation, the Workforce Mobility Act of 2019, to prohibit noncompete agreements, while the FTC is reviewing a petition seeking a rule prohibiting noncompete agreements as an unfair method of competition.

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