Tight Labor Market Gives Edge to Workers in Non-Compete Agreements

Like many of you, I have signed a non-compete clause as an employee, which, otherwise I would have not been hired. There is always a little sinking feeling in your gut when you do so. It’s like you have signed away your rights, which you have to an extent, to make a living, or create a new company to do the same.

Typically in the past, courts have sided with the employer on competition agreements, as long as the terms are reasonable. Any non-compete clause that is more than two years long will generally not hold up in court. A person at some point is entitled to make a living, says the case law. So what is actually considered “competing,” so to speak? One component is proximity, which use to be valued more, but the advent of online business has made it not so much the issue.

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Depending on the contract or clause at hand, not competing might mean not working for any company that competes with your employer within a specific radius say, 50 miles. In addition, your employer may have you sign a non-compete that lists certain companies that you cannot work for during the stated time period.

There are essentially four broad categories that define the non-compete agreement.

  1. Length of Time: Typically, the shorter the time, the more enforceable it is.
  2. Geography: Like time, the smaller the radius from the employer, the more enforceable.
  3. Limitations: A more specific agreement will hold up better than a broader-based one.
  4. Overall Reason: Those with access to trade secrets and such are more likely to be asked to sign an agreement than those that don’t.

As one would imagine, there is a direct correlation in the signing of non-competes and the salary level of the employee. The U.S. Labor Department data above shows that the higher the annual salary, the more likely an employee will be to ask for a non-compete agreement. With that said, those making higher salaries are more likely to be mobile and more hirable than there lower-earnings counterparts.

This varies widely by state, but again, because of the tight labor market, there is excessive demand for labor under $40,000 per year. Evan Starr, an economist at the University of Maryland, remarks, “It looks like states that choose to enforce non-competes see declines in mobility, entrepreneurship and wages.” Ronald Gilson, professor of law at Columbia and Stanford universities, echoes the same sentiments. “There is no other purpose than to restrict competition in the market for employees.”

The economic environment regarding non-compete clauses is changing, especially in the lower quartile of earnings, in favor of the employee. In California, North Dakota and Oklahoma, non-compete agreements are generally void under state law, and are being scrutinized in a host of other states. Generally speaking, the more reasonable the non-compete, the better its chances of being upheld in court. If you’re asked to sign a non-compete, it’s important to review that document carefully and seek outside legal advice if its terms seem overly restrictive.

About John Thomas

John Patrick Thomas is a four-time cancer survivor who lives with his family in South Florida. John attended Gettysburg College and The American University before embarking on an entrepreneurial career on Wall Street. He turned to the teaching profession after his life-threatening bout with bone cancer. John has recently written a #1 Amazon Cancer Bestselling book entitled, “A Call to Faith, the Journey of a Cancer Survivor.” He has appeared in publications such as The New York Times, The Wall St. Journal, The Washington Post, Memorial Sloan-Kettering Cancer Center publications, and was featured in new DayStar network series, “Impact with Pastor Dave.” He has traveled as a missionary and may be one of the few people that tell you cancer was the best thing to ever happen to him. You’ll have to ask him why.

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