Noncompete Clauses for Blue-Collar Workers

July 5, 2019—Cleanfax Staff

A non-compete clause (often NCC), or covenant not to compete (CNC), is a term used in contract law under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). Some courts refer to these as "restrictive covenants." As a contract provision, a CNC is bound by traditional contract requirements including the consideration doctrine. The use of such clauses is premised on the possibility that upon their termination or resignation, an employee might begin working for a competitor or starting a business, and gain competitive advantage by exploiting confidential information about their former employer's operations or trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products, and marketing plans.

WASHINGTON — July 5, 2019 — On NPR’s “The Indicator” from Planet Money, Sally Herships and Stacey Vanek Smith discuss the rise of noncompete clauses among blue collar workers in today’s labor market. Noncompete clauses ask employees to agree, as a condition of employment, that they will not work for a competitor for a specific period in the event that they quit or are terminated. These clauses dictate the geography and time period of the restrictions and prevent employees from taking intellectual property, clients, or proprietary information to the company’s competitors.

According to NPR, noncompetes are common among white-collar professionals in industries like banking or insurance, where companies do have valuable intellectual property to protect. However, as the labor market has gotten more competitive, noncompetes are on the rise in contracts for all kinds of blue-collar work as well.

For example, there was a recent court case in Michigan where a swimming instructor was sued after he left one children’s swim school and started working for another in violation of a noncompete clause. A security guard in Florida was also sued after he changed companies in violation of a noncompete.

For an employer to pursue a case like this in order to enforce a noncompete clause is expensive, so why do companies bother? Is it worth it to incur legal fees in order to prevent a security guard or a swimming instructor from working for the competition?

Sarah Hutchins, a business litigation lawyer, explains, “If you have a non-compete 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.”

Smith points out that hiring is expensive, so using and enforcing noncompetes is one way that employers create a disincentive for employees to leave after the company has invested resources in hiring and training them.

However, Smith and Hutchins also explain that enforcing noncompetes can be risky. “If you take a worker to court, white-collar or blue-collar, your non-compete clause, it might not hold up,” Smith says. For example, the swimming instructor in Michigan won his case.

“Some states have even started pushing back,” Smith says. “Courts in New Hampshire, Maryland, Delaware and Rhode Island have been siding with workers and saying these non-competes the companies are having people sign, they are unreasonable.” Employers have to be careful about what they are asking their employees to sign.

Herships goes on to explain that noncompetes can also negatively impact the economy by restricting workers too much. “In 2016, the Obama White House said non-compete agreements, they hurt workers, like in the Goldfish Swim School case, and ultimately, they stifle the economy,” Herships says.

To listen to the full episode, “The Rise of the Blue-Collar Noncompete,” click here.

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