Non-compete agreements could prevent workers from finding new jobs during and after the pandemic

At the moment, nothing feels normal. Many of our favorite restaurants are closed or limited to take-out, our loved ones who work in hospitals or grocery stores risk infection by going to work, and (if we are fortunate enough) we are looking at our own four walls trying to be productive employees, parents, and partners. One thing that is all too normal, however, is what many Minnesota companies require for their employees that could prevent them from finding employment during and after this pandemic: a non-compete agreement. New research estimates that over half a million Minnesotans are subject to these agreements. So, what are they and how are they harming workers?

Non-compete agreements are an element of an employment contract that seeks to limit an employee’s capacity to work (or engage in specific work functions) for a competitor for a specific period of time in a specific geographic area. These kick in when an employee is fired or quits on his/her own accord. Companies often enact these agreements in order to protect trade secrets or investments in specialized training. Temporary Amazon warehouse workers, for instance, are asked to sign a non-compete agreement when they are hired and again prior to receiving severance. An agreement obtained by a reporter for The Verge in 2015 stated that the employee will not support the development or sale of “any product or service that competes or intended to compete with any product or service sold or offered” by Amazon for 18 months. When your former employer calls itself the everything store, you are limited from doing a lot.

Furthermore, Minnesota’s pandemic-boosted unemployment benefit applications are over 10.5 percent and, presumably, not all those workers will be able to return to their jobs. Minnesota has no protections for workers when it comes to non-compete agreements. Meaning if they are fired or let go for financial reasons, workers’ employment options are limited. The pandemic’s employment implications will exacerbate the negatives from these agreements.

Impact and prevalence of non-compete agreements

Numerous academic studies have found that these non-compete agreements have impacts on worker wages, training, and mobility – especially so on low-wage employees. After Oregon banned non-compete agreements for low-wage workers in 2007, wages saw an increase of around 3 percent. Michigan, on the other hand, inadvertently repealed its ban on these agreements and saw a subsequent 8 percent drop in mobility for workers.

The issue of non-compete agreements is familiar to Minnesota legislators. In four of the last eight years, lawmakers from both parties have put forth proposals to limit and/or study the economic impact non-compete agreements have on Minnesota’s workers. A national survey from researchers out of the University of Maryland estimate that, as of 2014, 18.1 percent of workers nationwide were subject to a non-compete agreement and that nearly 40 percent of workers had been subject to one at one point in their career. Using industry-weighted data, I estimate that 18.83 percent, or 548,816 Minnesotans, are likely to be subject to non-compete agreements.

So what is there to do?

Formerly employed need not apply

Minnesota currently has no exceptions to its non-compete agreements. This means, absent a court review of how “reasonable” the terms are, any worker could be subject to them.

In the short-term, Minnesota must follow the lead of seven states that restrict the ability of companies to enforce non-compete agreements on low-wage workers (such as Washington, Illinois, and Maryland). Low-wage workers are likely to be harmed most by restrictions on their labor during the current pandemic, and this solution would protect the most vulnerable workers who rely on their mobility as a prime feature of their employability.

In the long run, Minnesota could turn the non-compete agreement paradigm on its head. Our state could be the first in the country to require occupations or industries to ask for a carve-out to justify their employment restrictions. Three states (including neighboring North Dakota) ban non-compete agreements completely, but this solution helps to bridge the gap from a full ban to reasonable accommodations. Free movement of labor and fair compensation are hallmarks of our economic system in theory, and we can advocate to make them a reality.

Nick Stumo-Langer is a Master of Public Policy student in the Humphrey School for Public Affairs. 

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