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ILR dean’s research: Noncompete agreements widespread

More than 36 million private-sector American workers have signed “noncompete” agreements, which prohibit workers from joining or starting a competing business for a set period of time after leaving their jobs.

These agreements limit workers’ ability to leave their jobs for new ones, according to research co-authored by Alexander Colvin, Ph.D. ’99, the ILR School’s Kenneth F. Kahn ’69 Dean and the Martin F. Scheinman ’75, M.S. ’76 Professor of Conflict Resolution.

Alexander Colvin, Ph.D. ’99, the Kenneth F. Kahn ’69 Dean of the School of Industrial and Labor Relations.

Colvin and co-author Heidi Shierholz, senior economist and policy director at the Economic Policy Institute, reported their findings in “Noncompete Agreements,” which appeared on the institute’s website.

They based their findings on responses from hundreds of hiring managers around the country. Their results show that between 28% and 47% of the 129 million-member private-sector workforce – or about 36 million to 60 million workers – have signed these agreements.

“The big takeaway is that noncompetes are more widespread than people realize,” Colvin said. “They are even widely used in states like California that restrict their enforceability. This is one of the factors inhibiting wage growth, by hindering the labor market from driving up wages.”

Cornell’s Survey Research Institute conducted the survey.

More than 600 human resources or hiring managers for businesses with 50 or more workers responded to the survey. Nearly half of the respondents indicated that at least some of their workers are subject to noncompete agreements, and nearly one-third said all of their workers have signed noncompetes. Businesses are more likely to sign well-educated, highly-paid workers to noncompetes, though many businesses restrict low-wage workers’ movement, too, the researchers found.

About 29% of respondents whose workers earn less than $13 per hour sign all their employees to noncompetes, compared with about 36.5% of workers for businesses paying at least $22.50 an hour. Of respondents whose workers who have mostly attended or graduated from high school, more than a quarter make all workers sign noncompete agreements. About 45% of respondents whose typical worker has a college degree sign workers to noncompetes.

The group also found that noncompete agreements are more common in certain industries than others. Business services industry respondents led the way, with about 70% saying they sign at least some workers to noncompetes and a little over half saying they sign all workers. The group found noncompetes were rarest in the leisure and hospitality industry, where only a quarter of respondents said a portion of their workers have signed them.

The agreements remain popular with California employers, despite being unenforceable there, the group said. Of the 82 California businesses that responded, about 45% said they subject some workers to noncompete agreements, and about 29% said they subject all workers to them.

Shierholz, who was the U.S. Department of Labor’s top economist for most of President Barack Obama’s second term, said the survey findings are troubling because these agreements hurt the economy.

Noncompetes make it “so that you don’t have outside job opportunities and your employer doesn’t have to give you a decent wage increase to keep you,” Shierholz said. “The other thing is that it hurts competition … . It’s not like you just can’t work for another firm in this industry; you also can’t start another firm in this industry.”

Federal reform may be on the horizon. Not only have lawmakers, including Florida Republican Sen. Marco Rubio, proposed limiting noncompete agreements, but also the U.S. Federal Trade Commission is set to probe next month whether the agreements suppress competition.

Julie Greco is a communications specialist with the ILR School.

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