Are Noncompete Clauses On the Way Out?
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Here's your money briefing for Thursday, July 22nd. I'm J.R. Whalen for The Wall Street Journal. You might have heard of non-compete clauses. Maybe you've even had to sign one for your job. For ages, companies have used non-competes to keep workers from heading off to work for competitors.
Partly as a labor retention strategy. You know, they, especially at a, you know, perhaps a time like this or when the labor market is very tight, they don't want to lose workers.
But the days of non-compete clauses may be numbered. Coming up, our workplace reporter Lauren Weber will explain how states and the federal government are taking steps to weaken non-competes or take them off the books altogether. That's after the break.
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Workers quit jobs and move on to the next step in their career all the time. But when it comes to the possibility of taking a job with a competitor, that's when things get tricky. Companies often include non-compete stipulations and employee agreements as a way of restricting where they can go after leaving their job. Now these agreements are drawing attention from regulators. Lauren Weber covers workplace issues for the WSJ. She wrote about non-competes and what their future looks like. Lauren, thanks for coming on the show.
Thanks for having me.
So Lauren, why do employers sometimes use non-competes and how common are they?
What are noncompete clauses and why do employers use them?
Originally, non-compete agreements were used mainly to protect real trade secrets. So they were applied to the contracts of, say, top executives or high-performing salespeople or technical scientists who had real proprietary information like formulas. But over time, they've become much more common, partly, I think, because of the internet. This is what some of my sources told me. It became really easy for business owners and lawyers to just find a template online, cut and paste it into employment contracts and apply it to all of their workers. So according to one survey that was completed recently, 32% of companies use non-compete agreements in the employment contracts for all of their employees.
That's from entry-level workers and the lowest paid workers all the way up to their highest executives. And I just want to add to that, not only, like I said, entry-level workers, but even very low-paid people have become caught up in these non-compete agreements like janitors or baristas or school teachers, security guards. So for people who are earning relatively little and in large part don't have access to confidential information, they're still being caught up in these.
So what does a typical non-compete clause in an employee's agreement with a company call for, and what do they actually say?
Generally, non-compete clauses will say something like, you can't go to work for a competitor, a direct rival in the same industry, usually for a certain length of time. It might be six months, it might be two years, sometimes it's even longer. Sometimes they'll also include a geographic radius.
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