From sandwich maker to CEO: The effect of non-compete agreements on Washington workers
Key Findings
- Non-Compete agreements are contracts between companies and employees that delay an employee’s ability to work for competing companies.
- In an economy that is increasingly technical and knowledge-based, employers’ desire to protect their property and costly investments is understandable.
- According to the U.S. Treasury, many workers are not aware that they were hired under a non-compete agreement and approximately 18 percent of U.S. employees are currently working under one.
- Washington state is among the majority of states which have a “blue pencil” doctrine, meaning a judge can modify the language in an employment contract to make certain provisions comply with state law, while leaving the rest of the contract unchanged.
- In several states, non-compete agreements as a whole must comply with state law in order to be enforceable.
- In California non-compete agreements are unenforceable. Experts believe this may be a factor in the innovation, rapid growth and flexibility in recruiting talent in Silicon Valley.
- Non-compete agreements have a role in protecting trade secrets and intellectual property, but they should not be overly used to unreasonably restrict normal movement in the labor market or to stop workers from finding future job opportunities.
Introduction
In 2016, the sandwich chain Jimmy John’s Gourmet Sandwiches stopped requiring employees to sign non-compete agreements. Under the agreements, employees had agreed not to accept employment for at least two years at any company that derived more than 10 percent of its revenue from the sale of sandwiches and which was located within three miles of an existing Jimmy John’s restaurant.
After significant public outcry and intense pressure from state governments, the company dropped non-compete clauses from its employee contracts.
The practice of requiring non-compete agreements severely limits the mobility and flexibility of labor in the fast food sector, where many young, low-skilled, and part-time workers find employment. While the Jimmy John’s case is an interesting example of how binding non-compete agreements can go too far, it indicates a growing problem for many workers in particular economic sectors.
